By Arthur Chang (PO ’20), Senior Editor
1. Introduction
The U.S. government introduced the concept of copyright with the intention to promote the progress of “useful arts.” Copyright legislation did this by granting creators a limited monopoly over their works.[1] Though regulations are typically effective during the short period following their inception, the ephemeral nature of technology, and therefore the methods of consumption and distribution of copyrighted works, quickly render copyright legislation outdated.
Thus, copyright law has long been a point of contention between legislators, copyright holders, and licensors. With the recent strides in technological innovation related to copyrighted content, the shortcomings are becoming increasingly apparent. The inefficiency of the music licensing system poses a legitimate threat to the innovation, stability, and future as a whole of the music industry. This article examines the current issues of copyright legislation in relation to music licensing and the necessary steps to reconcile the two.
2. Basic Overview of Current Copyright Law
In order for a work to be considered copyrightable, it must be original, fixed in a material form, and possess a minimum level of creativity.[2] Under current legislation, copyright on an original work is granted immediately upon its fixation. In the case of music, a composition is considered fixed once it has been made tangible, i.e. produced in the form of a sound recording or a written composition.[3] However, this automatic copyright does not allow the holder to enforce or protect their material against copyright infringement through litigation. Once rights holders officially register their copyrights with the U.S. Copyright Office, they are granted several additional rights. A registered copyright allows the rights holder to protect his or her material in court, qualifies the author to receive statutory damages, and provides a public record of copyright claim.[4]
For non-dramatic music (musical works not associate with musical theater), there are two distinct categories of copyrightable materials: musical compositions and sound recordings. A musical composition consists of music and any accompanying lyrics and may be either a written copy or phonorecord.[5] A phonorecord is any tangible object, including cassette tapes, CDs, vinyl records, and USB flash drives, that embodies a series of recorded sounds and from which sounds can be reproduced and perceived.[6] The second classification of musical works are sound recordings, which are the actual recordings of musical composition.[7] In other words, a musical composition is the idea of the music, and a sound recording is the performance of it. A recording artist or producer typically holds the copyright on the sound recording while the song writer and lyricist hold the copyright on the musical composition. It is often the case that one individual can be both the songwriter and performer, and therefore hold both copyrights.
The owners of copyrighted sound recordings are accorded the exclusive rights over their copyrighted materials to reproduce their work, create derivative works, distribute copies of their work, and perform sound recording by means of digital audio transmission.[8] Musical composition copyright holders are granted the two additional exclusive rights of public performance and public display of their work.[9] This creates a disparity between the royalties yielded from a copyright to a musical composition and one to a sound recording.
In order to use copyrighted material in any ways that infringe upon the exclusive rights, a license must be obtained from the copyright holder. A majority of licenses are voluntarily granted by means of a written contract outlining a negotiated fee, the terms of the deal, which rights are granted to the licensee, and, if applicable, the royalties to be paid to the copyright holder.[10] There are certain exceptions to the exclusive rights of a copyright that allow for statutory licenses. It is required for copyright holders to grant statutory licenses, also known as compulsory licenses, when their work has been previously recorded and distributed to the public. A compulsory license allows its holder to record and distribute a new recording of a copyrighted song as long as the new recording does not implement any major changes to the original musical arrangement.[11] Rather than allowing for a negotiated fee, compulsory licenses have standardized fees determined by the Copyright Royalty Board. While compulsory licenses were introduced to reduce the likelihood of a monopolistic system within the music industry, they are rarely utilized. Rather, the statutory prices now primarily function as a price ceiling for voluntary license deals.[12]
In regard to musical works and sound recordings, there are four classes of licenses: public performance, synchronization, print, and mechanical. As the name suggests, public performance licenses cover the right to any public performance of a song, including live and recorded performances on radio, on television stations, in commercial establishments, etc. In most cases, public performance royalties are paid only to the holders of the musical composition copyrights. The exception to this is a digital transmission, which additionally requires the licensee to pay a royalty to the sound recording copyright holders.[13] Synchronized licenses are required in order to accompany copyrighted music with any visual images. Synch licenses are used for music in movies, video games, commercials, etc., with royalties being paid to copyright holders of both the underlying composition and of the sound recording.[14] Print licenses primarily cover sheet music and folios, which are compilations of songs, and provide payouts to musical composition copyright holders.[15] Mechanical licenses cover the physical reproduction of songs, such as CD’s and digital downloads, and although not legally determined, have generally been understood to cover streaming as well.[16] With legislation left unaltered with the introduction of interactive streaming services such as Spotify and Apple Music, mechanical royalties have become an area of great dispute.
To ensure the proper collection of their royalties, songwriters typically sign with publishers.[17] Composers sign the copyrights of their works over to the publishers and in return, publishers issue licenses, find users, and collect and distribute money to the songwriters.[18] Most of the time, publishers will affiliate with performance rights organizations (PRO), meaning that they sign over the public performance rights of all their writers’ works. In turn, PROs issue public performance licenses, collect money, and pay royalties to the publishers.[19] In the United States, ASCAP (American Society of Composers, Authors and Publishers) and BMI (Broadcast Music, Incorporated), both non-profit PROs, make about up ninety percent of the PRO market share. The largest mechanical licensing counterpart in the United States is the Harry Fox Agency, which follows a similar process, but collects and distributes mechanical royalties.
3. Technology Causing Issues in Copyright Laws
The introduction of interactive streaming services like Spotify have led to an increase in music consumption and overall music industry revenue. Streaming services are considered interactive if they allow listeners to actively choose songs. Although growth of the music industry is in many aspects beneficial, it has been catastrophic for album and song sales, both physical and digital, and it has changed the structure of the entire industry. In 2016 alone, overall album sales and song downloads decreased 13.9% and 23.8% respectively.[20] This augmented revenue has not been properly distributed among all deserving parties; with this shift away from music ownership and towards music streaming, money is migrating away from artists and songwriters, and into the pockets of large streaming companies. As copyright holders are collecting substantially less royalties from music sales, they are relying more heavily on streaming royalties. While the music industry has evolved leaps and bounds, the laws governing the industry have remained largely stagnant. In fact, current copyright law in the U.S. does not define interactive streaming nor does it state which exclusive rights interactive streaming infringes upon, resulting in ambiguity and significant complications in proper payouts.
Due to the vague nature of outdated legislation, there are no laws outlining which licenses are necessary in on-demand streaming. Instead, the industry guidelines were formed under general industry consensus. Whereas regulation is typically stipulated by law, the rules for copyrights in on-demand streaming were developed through practice and are not held accountable by any legislation. In the case of digital downloads, it was determined that only mechanical rights are exploited. Online personalized radio services, which are non-interactive, only require public performance licenses. Terrestrial radio broadcasts only require performance licenses for the musical compositions, which means that they only pay the songwriters, not the performers of a song. This is because when legislation regarding radio was written, terrestrial broadcasting companies successfully argued that radio provided free advertising for record labels and their artists. However, this notion has recently become more controversial, with copyright holders attempting to collect greater royalties from radio broadcasts.[21] Until recently, it was generally accepted that interactive streaming services exploited both mechanical and public performance rights. As compensation becomes a greater point of contention in the music industry, copyright holders are fighting to change the detrimental guidelines that prevent artists from collecting much of the royalties that they deserve.
In 2015, two class action lawsuits were filed against Spotify, accusing the streaming service of distributing copyrighted music without mechanical licenses. The two class actions were merged and a settlement of $43.4 million was reached, but it did not provide a solution to the problem of unpaid mechanical royalties. One factor in this issue is that Spotify utilizes the mechanical licensing services of the Harry Fox Agency, and although they are the predominant mechanical licensing organization in the U.S., their database does not contain the copyright information for all musical work. As a result, there are mechanical royalties that go unpaid.[22] In July 2017, Spotify was again faced with two lawsuits concerning unpaid mechanicals. However, the second time these allegations were made against Spotify, it elicited a different response. The streaming service’s lawyers filed a motion asserting that they were not obligated to pay mechanical royalties. The legislature’s failure to define, or even acknowledge, interactive music streaming in regard to copyright law allows for this argument to even be made.[23] In order to avoid future disputes, copyright legislation must be updated to consider the current state of technology and consumption of copyrighted material.
Another prominent issue resulting from the rise of music streaming is a lack of standardized payment rates. While it may not make a substantial difference to listeners what platform they use to stream music, the disparity between royalty rates is significant to artists and record labels. Streaming services typically pay record labels a large fee for an umbrella license of all their songs. On top of that, the streaming services and record labels negotiate a royalty. These rates are undisclosed, but researchers have estimated the sound recording royalties per stream. According to these calculations, Napster and Tidal provide the highest payouts, both hovering just over one cent per stream. Apple Music is estimated to pay royalties of about 6/10 of a cent, Spotify 4/10 of a cent, Pandora 1/10 of a cent, and YouTube 6/100 of a cent per stream.[24] These fractions of cents per stream are allocated to record labels, which in turn pay an even smaller amount to the recording artists. The royalties are typically determined in the artists’ record deals. On top of that, artists do not necessarily know what the negotiated royalties are between their labels and the streaming services.
This is an extremely simplified illustration of streaming services royalties as there are several other considerations that must be taken into account to completely comprehend such payments. For instance, free, ad-supported streaming services provide significantly lower royalties than premium, subscriber based platforms. In the case of YouTube, factors of monetization include user engagement and the brand and type of ads played throughout a video. The intersection of the legality of such royalty standards and the modern dissemination of music results in the concept known as the value gap: the hypothetical disparity between the royalties that services should be paying for content and what copyright holders actually receive. One jarring example of this value gap is the fact that although YouTube accounted for the most music streams by a significant margin, it generated less revenue than vinyl sales did in the first half of 2017.[25] When the most utilized streaming service distributes the lowest royalties to creators, it raises concerns about the survival of artists and songwriters in the context of modern technology and obsolete laws. In order for the music industry to continue to thrive, legislation must be crafted to allow creators to make a living. To further complicate the situation, the millions of daily micro-transactions necessary to calculate streaming royalties are incredibly difficult to perfectly track. Therefore, royalties are often left unpaid or ignored. The multitude of distinct considerations for each platform, a lack of transparency in payment, and the absence of standardized industry laws result in a severe discrepancy in royalties paid to artists, labels, publishers, and songwriters.
Another shortcoming of copyright legislation is evident in the Digital Millennium Copyright Act (DMCA). The DMCA was signed into law in 1998 in order to promote access to information and the growth of the internet, but since its enactment, the internet has evolved significantly while legislation has not. Title II of the DMCA, the Online Copyright Infringement Liability Limitation Act (OCILLA), granted online service providers safe harbor absolving them of monetary liability in certain cases of copyright infringement. If a provider is unaware of material transmitted, cached, stored or linked by its users that infringes upon a copyright, it cannot be held monetarily liable. The only two requirements for a provider to be eligible for liability limitation are that they “(1) adopt and reasonably implement a policy of terminating in appropriate circumstances the accounts of subscribers who are repeat infringers; and (2) must accommodate and not interfere with “standard technical measures.”[26]
The OCILLA effectively allows online service providers like YouTube to profit off of illegal materials. With automatic ad placement on user uploaded videos that infringe upon songwriters’ and artists’ copyrights, YouTube can claim ignorance and remove the material only once the copyright holder has submitted a notification of copyright infringement. Often, material that is removed due to copyright infringement is quickly re-uploaded, adding to the persisting value gap.[27] As technology rapidly improves, it not only produces better distribution but also allows for further circumvention of the law, demonstrating the necessity for legislation to evolve with technology. With companies developing new methods of music distribution and simultaneously lobbying to pay the creators as little as possible, the result is inevitably an unsustainable relationship.
4. Government Shortcomings in Copyright Legislation
Beyond the questionable actions taken by corporations in the private sector and the exploitation of ambiguous and archaic laws, there are also several flaws in the legislative and judicial processes in regard to copyright laws. One of the foremost shortcomings is the lag of legislation behind technology. As technology continually develops and evolves, it is constantly changing the scope of copyright law. Consequently, legal delay is an inherent complication, as copyright law inevitably will struggle to maintain stride with technology. Nevertheless, it is unreasonable to expect Congress, through its intentionally arduous and deliberate legislative process, to constantly alter laws at the rapid pace of technological dissemination. Indeed, few bills and amendments have recently been passed in order to adjust to advancements in technology utilized in the consumption of copyrighted works, creating opportunity for firms to capitalize on outdated regulations.[28]
Aside from the prolonged legislative process, legal delay is also a result of the dynamic and unpredictable nature of technology. As the implications of technology are often difficult to comprehend until it comes into prevalent use, it is nearly impossible for the government to aptly revise legislation. Consequently, copyright laws are left as open-ended standards to avoid the constant need for amendments and revisions.[29] Such imprecision results in the aforementioned ambiguity and leeway for the exploitation of copyrighted material. As technology continues to develop and affect the structure of the music industry, the problems will inevitably amplify.
Open-ended copyright guidelines incite legal conflict. As demonstrated by the plethora of copyright lawsuits, ambiguity in copyright legislation often results in adjudication in court. Drawn-out judicial action frequently deepens legal delay, and in that time, people can continue to act within the vague limitations of the copyright regulation. Furthermore, new technology can arise during that period, rendering the current issues obsolete.[30] Not only are the courts a less efficient solution to copyright disputes, but courts are, according to Justice Breyer’s concurrence in the MGM Studios, Inc. v. Grokster, Ltd. case, “less well suited than Congress to the task of accommodat[ing] fully the varied permutations of competing interests that are inevitably implicated by such new technology.”[31] This arises in part from the court’s lack of expertise in copyrights and the relevant technology. Due to these shortcomings in the U.S. government’s approach to copyright lawmaking and adjudication, copyright legislation is significantly less effective than it needs to be.
5. Potential Solutions
With issues prevalent in both the private and government approaches to addressing copyrights in the music industry, one is left questioning how the two entities can be reconciled in order to find the proper solutions. If the two sectors cannot successfully cooperate to rectify the predominant problems in the music industry, who is better equipped to remedy the ailments afflicting the copyright holders?
As previously mentioned, one of the difficulties in calculating streaming royalties is the sheer number of plays and micro-transactions that occur on a daily basis. Many private firms and startups are turning to blockchain technology, popularized by cryptocurrencies like Bitcoin, to help resolve this problem. Blockchain forms a decentralized database by breaking information into ‘blocks’ which are stored on a network of computers. These blocks of data are encrypted and linked to all previous blocks in that ‘chain’ of information. Utilizing blockchain technology, digital songs can be encrypted and the resulting chain would provide transparent data of every subsequent download and stream of that file. Not only would this be beneficial for the formation of a comprehensive, public copyright database, but it would also increase transparency in the payment chain, allowing copyright holders access to details on their royalties. Blockchain technology would make accurately tracking the millions of daily micro-transactions considerably more feasible. Furthermore, the meta-data embedded in these blocks would provide digital services all the necessary information to provide appropriate payment. Such meta-data could include information on the artists, songwriters, publishers, and all fractional owners of any relevant copyrights.
There are several measures that the government should take in order to modernize copyright legislation. In order to deter arguably legal misuse of copyrighted materials, Congress must introduce more focused legislation that acknowledges current technology. By creating regulations with a narrower scope, legislators can reduce ambiguity. Existing policies do not even address interactive streaming services or define the term streaming, allowing companies to operate on generally accepted guidelines which are not legally binding. With definitive regulations, corporations would not be able to act as questionably in regards to music licensing. Concurrently, more concentrated and applicable rules will minimize the necessity for judicial action in deciding copyright cases. For instance, legislation that specifies which rights interactive streaming exploits would preempt cases similar to those that Spotify has faced. A more effective attempt to keep legislation up-to-date with and relevant to modern technology and the distribution of music will benefit the protection of copyrights and encourage fair compensation. With regards to services such as YouTube, the government is passively augmenting the value gap by allowing the company to continue to operate under the DMCA. Failure to acknowledge that technology has surpassed the original scope of legislation and is now legally infringing upon the original intent permits unfair and insufficient compensation. Congress could also consider the implementation of standardized royalties and licensing fees across streaming platforms of a specific structure, either ad-supported or subscriber-based. This would produce a system that would not penalize artists and songwriters whose music is streamed more through services with lower payouts.
One current attempt at solving some of these issues is the creation of a comprehensive copyright database. A complete database of copyright information would provide all involved entities with sufficient knowledge regarding copyright ownership and who should receive royalties for the use of specific songs. However, private firms and the U.S. government have both initiated attempts at such an endeavor, and are currently at loggerheads over how it should be approached. In July 2017, Congressman Sensenbrenner introduced the Transparency in Music Licensing and Ownership Act, which would “establish a database of nondramatic musical works and sound recordings to help entities that wish to publicly perform such works and recordings to identify and compensate the owners of rights in such works and recordings.”[32] The database would be established and maintained by the U.S. Copyright Office, available for free to the public, and serve to provide information for licensing and enforcement of copyrights. Information of each musical work would include the title, copyright registration date, copyright owner, entity through which it can be licensed through, international standard musical work or recording code, featured recording artists, titles of any album containing the work, and the publically distributed catalogue number and label name.[33]
Soon after the introduction of Rep. Sensenbrenner’s bill, ASCAP and BMI, the aforementioned largest PROs in America, announced that they had been working together for a year to create a similar database to improve transparency in the music industry.[34] An immediately apparent flaw of the ASCAP-BMI joint database is its exclusivity. Though the ASCAP and BMI represent a majority of musical works copyright holders, the database would not include copyright information from smaller PROs such as SESAC, forming an incomplete database. Additionally, the database would only include copyright information from PROs, not publishers. Thus, it would be ineffective in keeping track of and providing information for mechanical licensing. But there are certain advantages to the private sector’s reaction to the Transparency in Music Act. Rep. Sensenbrenner’s bill stipulates that the Copyright Office is to build the database from scratch, requiring significantly more time and labor, whereas the ASCAP-BMI database is already in the works. A potential solution would be for the two efforts to join together; however the two parties are in conflict, with Sensenbrenner calling the ASCAP-BMI database an attempt “to maintain power over a failing process that only serves their interests, not those of the American consumer.”[35] Similarly, many members of the music industry do not want further government intervention. With the two sides at odds, a joint effort seems unlikely.
In 2015, the U.S. Copyright Office published a report entitled Copyright and the Music Marketplace, outlining several principles it believed to be necessary in the reformation of copyright laws. Unfortunately, the U.S. Copyright Office does not have the power to enact legislation, only to administer the laws and advise Congress in matters concerning copyrights.[36] The report discusses several concepts necessary in the restructuring of copyright laws. One of the most important principles is consistent regulation of copyrights across the same platforms and uses. This proposal would resolve many ambiguities and inequities in the realm of digital platforms, requiring uniform rights for both the owners of sound recording copyrights and musical composition copyrights. Additionally, the report stipulates that terrestrial radio broadcasters should be required to obtain sound recording public performance licenses. Not only would this provide fair compensation for sound recording rights holders, it would also improve competition between terrestrial radio broadcasters and other services that require sound recording licenses. [37] Another noteworthy concern that the Copyright Office addresses is the absence of a uniform rate-setting standard for statutory license fees, especially across platforms that offer similar services. They suggest an overhauled single rate standard that will reflect the fair market value of copyrighted works.[38] In regard to the lack of transparency in the payment process, the Copyright Office proposes a comprehensive public database of copyrights, which would require the cooperation and contribution of information from private actors, such as ASCAP and BMI. This would potentially help to fill the gaps of copyright knowledge that prevent proper compensation. The abovementioned database would be the foundation for an updated licensing system, operating through MROs, which would be the mechanical rights equivalents of PROs.[39] If enacted, the proposals of the U.S. Copyright Office would provide a much needed update to copyright laws, but it is imperative to note that not only would it require enormous amounts of cooperation and legislation, it would also require continual revising and amending as technology develops in order to maintain its intended effects. The responsibility lies upon Congress to take into account the opinions and expertise of individuals within the music industry and the U.S. Copyright Office and to take legislative action.
6. Conclusion
The dynamic state of technology combined with stagnant copyright legislation has resulted in several of the pressing issues evident in the music industry. As most of the relevant laws were written before current technologies became commonly used, they are ill-equipped to address the complications brought about by new forms of music consumption. Failure to acknowledge changes in technology has culminated in laws that are unreasonably ambiguous and susceptible to manipulation, creating a problematic system of compensation for copyright holders. If the failure to pay artists fair and reasonable royalties persists, the music industry will inevitably lose creatives, who are the very heart of the industry. If artists are unable to support themselves as fulltime musicians, they will be forced to commit less time and effort to producing the music. Not only will this be extremely detrimental to the quality of music and entertainment, but it will also negatively affect the streaming services who underpay these musicians. In fact, it is in the best interest of the entire music industry to properly compensate artists, as they create the music that sustains the business. In order to resolve these current issues, copyright legislation must be amended to address the modern state of technology. To preserve the music industry and its constituents, Congress must work in conjunction with the private sector to rectify the shortcomings of copyright legislation and modernize the existing law.
[1] Donald S. Passman, All you need to know about the music business up-to-Date information on new business models, including music streaming services ; the latest developments in digital rights ; updated numbers and statistics for the traditional industry. (Simon & Schuster 9th ed 2015).
[2] Ibid.
[3] Ibid.
[4] 17 U.S.C. § 101
[5] Ibid.
[6] Ibid.
[7] Ibid.
[8] 17 U.S.C. § 114
[9] 17 U.S.C. § 106
[10] “Licensing.” RIAA. Accessed October 06, 2017. https://www.riaa.com/resources-learning/licensing/.
[11] 17 U.S.C. § 115
[12] Passman, supra note 1.
[13] “Legal Issues Involved in the Music Industry.” Lawyers for the Creative Arts. 2005. Accessed October 6, 2017. https://law-arts.org/pdf/Legal_Issues_in_the_Music_Industry.pdf.
[14] Daniel McCarthey, “Synch Licensing: Why Old Thinking Is Leaving Money on the Table.” Variety, June 7, 2017.
[15] Passman, supra note 1.
[16] U.S. Code, supra note 4.
[17] However, it is becoming increasingly common for songwriters to act as their own publishers.
[18] Passman, supra note 1.
[19] Ibid.
[20] BuzzAngle Music 2017 Mid-Year U.S. Report. Report. July 4, 2017. Accessed October 6, 2016. http://www.buzzanglemusic.com/wp-content/uploads/BuzzAngle-Music-2017-Mid-Year-U.S.-Report.pdf.
[21] Passman, supra note 1.
[22] Chris Cooke, “Spotify questions whether mechanical royalties are even due on a stream” Complete Music Update. September 1, 2017. Accessed October 06, 2017. http://www.completemusicupdate.com/article/spotify-questions-whether-mechanical-royalties-are-even-due-on-a-stream/.
[23] Gaudio et al. v. Spotify USA Inc., 3:17-cv-01052, (Tennessee Middle District Court 2017)
[24] David McCandless, “What Streaming Music Services Pay — Information is Beautiful.” Information is Beautiful. June 21, 2017. Accessed October 06, 2017. http://www.informationisbeautiful.net/visualizations/spotify-apple-music-tidal-music-streaming-services-royalty-rates-compared/.
[25] Ben Sisario and Karl Russel, “In Shift to Streaming, Music Business Has Lost Billions.” The New York Times. March 24, 2016. Accessed October 06, 2017. https://www.nytimes.com/2016/03/25/business/media/music-sales-remain-steady-but-lucrative-cd-sales-decline.html?_r=1.
[26] 17 U.S.C. § 512
[27] “Fix the DMCA to Curb Abuse.” About – Value The Music. Accessed November 06, 2017. https://valuethemusic.com/about/.
[28] Ben Depoorter, “Technology and Uncertainty: The Shaping Effect on Copyright Law.” University of Pennsylvania Law Review 157, no. 6 (2009): 1831-868. http://www.jstor.org/stable/40380280.
[29] Ibid.
[30] Ibid.
[31] Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, (2005)
[32] H.R. 3350 — 115th Congress: Transparency in Music Licensing and Ownership Act.
[33] Ibid.
[34] Eggerton, John. “BMI, ASCAP to Combine Music Databases.” The Business of Television. July 26, 2017. Accessed October 06, 2017. http://www.broadcastingcable.com/news/washington/bmi-ascap-combine-music-databases/167467.
[36] U.S. Copyright Office, “Overview of the Copyright Office.” Copyright. Accessed November 06, 2017. https://www.copyright.gov/about/.
[37] United States. United States Copyright Office. By Maria A. Pallante. February 2015. Accessed October 6, 2017.
[38] Ibid.
[39] Ibid.
