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The US Copyright Office released a 245 page report Thursday afternoon proposing radical changes to the way music is licensed. In a world where the only sector of the industry that's seeing growth is streaming, the laws governing how music is paid for and consumed are still based on mechanical pianos. There's an absurd disconnect between the way streaming services function (arguably the future of the music industry) and the way they are asked to pay for the music they bring to consumers. "From a copyright perspective," the report states, "we are trying to deliver bits and bytes through a Victrola."
The report's recommendations, like the industry itself, are complicated. But on net the Copyright Office's recommendations would give an advantage to the Performance Rights Organizations (organizations like ASCAP and BMI who gather and distribute money to songwriters and publishers) and probably the labels while upending the business models of some digital streaming services. The report thoroughly analyzes the history of music copyright over time and how artists are paid before diving into challenges to the current system. The music business is fragmented into dozens of different sectors who will all be affected dramatically if these laws go into place, something I've written about here.
How it works now
To understand the importance of these recommendations, it's helpful to start with how the system currently works. Every song has two copyrights, one for the music and lyrics (the mechanical license) and one for the actual recorded performance of the song (sound recording). Every type of platform pays a flat fee to the PROs for the mechanical license, but the performance licenses vary. For some situations, like use in a movie or television show, or on interactive streaming platforms such as Spotify or Rdio, deals are negotiated on a case-by-case basis. Non-interactives (such as Pandora and SiriusXM) operate under a compulsory license which allows them to pay a flat fee set by the government. Terrestrial radio doesn't have to pay performers at all, on the theory that the exposure is good for them.
This situation is messy to say the least, and has all sides of the argument pushing for a system which allows their sector of the industry to flourish. The Copyright Office's report is very friendly to the PROs and other middlemen of the music industry, but just what it means for consumers and distribution services isn't entirely clear.
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A Spotify press event (Spencer Platt/Getty)
What the report suggests
This report, according to the "Analysis" section, is meant to create guiding principles for Congress if they choose to initiate reform of the industry in a "holisitic way." That doesn't mean the report is a direct guideline for Congress to make changes so much as a sketch of what the Copyright Office sees the future of music looking like.
"As a number of commenters remarked during the course of this study, if we were to do it all again, we would never design the system that we have today," says the report. "But as tempting as it may be to daydream about a new model built from scratch, such a course would seem to be logistically and politically unrealistic. We must take the world as we find it, and seek to shape something new from the material we have on hand."
The report's ideas come down to four major things:
- Transparency: In brief, the report suggests that the industry create some sort of database that would allow for transparency about who owns the copyrights to which songs. Currently, no comprehensive and public database exists which means that sometimes organizations have no idea who to pay.
- Federalization of Pre-1972 music: Under current law, songs recorded before 1972 can be used by services such as Pandora and Sirius XM without payment to the owners. The office suggests bringing those songs under federal law, so as to standardize the payment rates for this music.
- Changes to the Compulsory License: The report envisions changes to which rights fall under compulsory blanket licensing and which rights will be subject to case-by-case negotiations. Right now, for example, a company like Pandora or SiriusXM only has to pay a blanket fee to the PROs to play all of that organization's music. Without this, they would be forced to enter into direct-deals with every single artist about per play rates.
- Anit-trust decrees: The report suggests reconsidering the 75-year old antitrust decrees currently helping ASCAP and BMI (Performing Rights Organizations). The Copyrights Office wants to turn them into "Music Rights Organizations" and give them the ability to bundle reproduction, distribution and performance rights together.
Most of these changes are pretty inside-baseball. They're industry talk, and they seem on the surface like they won't effect the way consumers find and listen to music, but they most certainly will.
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Abbey Road Studios Opens Its Doors To The Public (Tim Whitby/Getty)
How that could change the industry
This report doesn't directly affect the way artists produce music at all, though some of the changes could lead to changes in how much they are paid in the future. Instead, distributors are the ones who would be most effected were this report to be implemented.
"The Copyright Office missed a significant opportunity to truly advance copyright, music licensing and the music marketplace with its just released report," Lee Knife, executive director of the Digital Media Association said in a statement. "The suggestions proposed would continue to fragment the already-complex licensing structure and put at risk those platforms that deliver music legally and compensate music creators." What Knife is talking about in this statement are the divisions the Copyright Office continues to draw between types of music and types of performances.
This report, for example, suggests that AM/FM radio stations should have to pay for performance rights, something they don't currently do. "The fact that a multi-billion dollar broadcasting industry that derives its value from music gets a special interest carve-out from paying artists and labels continues to be indefensible," the RIAA said in an official statement.
But the changes wouldn't only change radio, they would also effect any kind of non-interactive streaming service, even if those changes aren't immediate. If individual publishers can withdraw from the PROs then that increases the number of negotiations that a streaming company has to go through to gain all of the necessary copyrights.
"Many of the specific recommendations throughout the report unfairly discriminate against digital technologies while supporting the further consolidation of market power among the handful of major corporations and their affiliated associations which dominate music licensing," Knife said in a statement.
The report does seem to lean heavily in the favor of the middle-men of the industry (notably the labels and the PROs) who the report suggests should have more power distributing and licensing music. ASCAP president Paul Williams said in a statement that "today’s report is an important step towards meaningful reform."
But really due to the absurd number of interests represented, there are plenty of contradictions in the report, and whoever takes up the mantle of reassembling the music industry will have their work cut out for them.
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A cool cat listens to music on the street. (Shutterstock)
The impact for consumers
Were all of these changes implemented immediately, the way people listen to music in their day-to-day lives, would change dramatically, because the industry is in no way prepared to make some of these changes on the turn of a dime.
"The current state of opacity causes real harm to artists, listeners, and the tens of thousands of American businesses that legally play music every day for millions of consumers. Thus, statutory licenses are a necessary part of the music ecosystem," Dave Grimaldi, director of public affairs for Pandora, said in a statement.
What Grimaldi seems to be hinting at here is that the changes suggested by the report — specifically the upheaval of the mechanical (statutory) licenses — requires a level of transparency that literally no one in the industry is capable of providing. Simply, the infrastructure doesn't exist within the industry to make these kinds of broad sweeping changes. Sometimes, artists don't get paid because of wrong-doings, but often they aren't paid the correct amount simply because no one knows who to pay.
That's why you have people like Knife saying that, "If implemented, these proposals will likely lead to artists and songwriters experiencing reductions in royalty payments and risk listeners having reduced access to the music they love." If every deal has to be negotiated directly, music would leave the digital market quickly and return slowly as those deals were made
The Copyright Office's report is only meant to be a guideline, and because it doesn't contain concrete steps to the future, it's obvious that it's only that. The fear, though, is that the suggestions made in the report will place more dividing restrictions on an industry that is already fragmented and struggling to understand its future.
You can read the Copyright Office's report here.
Correction: A previous version of this piece mis-concluded that PROs would be able to opt-out of streaming services. The proposed opt-out would actually be by publisher from the PRO, not by individual work.
