News: The Big Push To Reform Music Copyright For The Digital Age

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Momentum is building around a number of bills proposed in Congress that could increase royalty payments for music creators in the digital age, while making life more efficient for digital music services.

Although the four bills affect different sets of people, the music industry at large has gotten behind all of them collectively in hopes of getting them passed this year, calling the collection of bipartisan proposals the Music Bus (as in “omnibus legislation”). But a more appropriate metaphor is a train; the question is whether all of the cars will stay on the track or if a single car will derail and cause a wreck.

The four pieces of legislation go by names that represent the typical Washington combination of puns and alphabet soup: the CLASSICS (Compensating Legacy Artists for their Songs, Service and Important Contributions to Society) Act, the Fair Play Fair Pay Act, the AMP (Allocation for Music Producers) Act and the Music Modernization Act (MMA).

Music creators are paid royalties through an ad-hoc patchwork of laws, industry conventions and private deals, many of which date back decades. The industry has struggled to adopt, adapt, stretch and contort these structures as music has transitioned to digital. These four bills are part of that process; collectively, they are the biggest copyright legislative package to reach Congress in decades.

To understand what each of these four bills does, it helps to know a few facts about music industry royalty flows. Here’s a diagram that captures the basics:

GiantSteps Media Technology Strategies. Portions licensed under Creative Commons Zero 1.0.

Basic rights and royalty flows from use of a digital music track.

Each recorded music track — that you might download from iTunes, own on vinyl, play on Spotify or hear on an FM radio station — has two copyrights: one for the musical composition and one for the sound recording. In the simple case, the former is created by a songwriter and managed by a music publisher while the latter is created by a recording artist and managed by a record label.

In addition, each of those two copyrighted works has two sets of rights that digital music services may need to license from the owners in order to play the track: the reproduction and distribution right (known as a “mechanical” for musical compositions) and the public performance right.

The patchwork of laws and deals has led to today’s complex and confusing situation, in which different types of digital music services have to license different rights and pay royalties according to different schemes under different conditions. For example, the law distinguishes between download services like iTunes; so-called interactive streaming services like Spotify, Apple Music and Google Play; and so-called non-interactive streaming or digital radio services like Pandora, Sirius XM and the streams of individual AM/FM broadcast stations.

With that background in mind, let’s look at the four pieces of proposed legislation.

The Bills

The AMP Act is the simplest to describe, although the details are rather arcane: It would formalize royalty payments to producers and engineers for sound recordings played on digital radio services so that they are more likely to get shares of those royalties.

The CLASSICS and Fair Play Fair Pay Acts also pertain to digital radio services; they are attempts to close loopholes in copyright law.

The last major revision of federal copyright law, in 1976, did not establish a federal copyright in sound recordings made before 1972; instead, state copyright laws (if any) governed those recordings. This wasn’t a big deal until digital music services appeared, with very large catalogs of music. Federal law gives digital radio services implicit permission to play sound recordings as long as they pay a government-set royalty rate. But because federal copyright doesn’t exist for pre-1972 recordings, digital radio services technically have to secure permission from and negotiate royalties with rights holders in order to play them. This is a painfully complex process, so most digital music services just didn’t bother. This led to lawsuits in different states, which (making matters worse) produced different outcomes.

The CLASSICS Act seeks to do what Congress neglected to do in 1976: make federal copyright apply to pre-1972 recordings. On the one hand, this would require digital radio services to pay royalties on those recordings (which some are doing now anyway, partially as a result of the various lawsuits); on the other hand, the statutory royalty rate would apply, making the process much simpler. It’s for the latter reason that digital radio services aren’t pushing back too hard against the CLASSICS Act, even though they fought lawsuits over pre-1972 recordings in court. The CLASSICS Act was first introduced into the House of Representatives last July, and a counterpart bill came into the Senate earlier this month.

The Fair Play Fair Pay Act would also affect digital radio. Both digital and AM/FM radio pay performance royalties (e.g., to ASCAP and BMI) on musical compositions. But only digital radio services pay performance royalties on sound recordings; AM and FM stations do not. That’s the loophole that Fair Play Fair Pay purports to close.

The original rationale for AM/FM radio not paying performance royalties on sound recordings was that radio provided important promotional services for them. Artists and labels needed radio airplay to sell records, so instead of radio stations paying recording artists and labels, the money flowed the other way, through payola and other “considerations” that made their way to radio DJs and program directors.

Digital radio services, on the other hand, needed sound recordings in order to attract audiences when they first appeared in the 1990s, so they didn’t object to paying performance royalties. Now, however, there’s an argument to be made that digital radio services are roughly as popular as AM/FM radio and therefore that the royalty playing field isn’t level.

There are three sets of stakeholders here with overlapping interests: recording artists and labels, digital radio services and AM/FM broadcasters. The stakeholders argue endlessly over the relative promotional values of various types of radio in the digital age. In addition, the NAB — the lobbying group for AM/FM radio — touts the value of small-town radio stations to their communities beyond playing music. (Fair Play Fair Pay exempts stations with less than $1 million in annual revenue from providing feeds of music play data and paying royalties; those stations merely need to pay $500 flat annual fees.) Meanwhile, record labels and digital radio services both point out that the United States is only one of three countries on earth that don’t provide performance royalties on sound recordings, the other two being Iran and North Korea.

A Different Focus

That leaves the Music Modernization Act, the newest of the four proposals; it was introduced into the House last December, with a Senate counterpart introduced last month. The MMA addresses different parts of the music industry: songwriters and music publishers, instead of recording artists and record labels; interactive music services like Spotify and Apple Music, not digital radio; and licensing for mechanical (reproduction and distribution), not performing rights.

The MMA purports to fix a problem that has been festering for a few years now in the world of interactive music services. These services require reproduction and distribution licenses for both sound recordings and their underlying compositions. They get licenses for sound recordings by making private deals with record labels; for compositions, the law guarantees them so-called mechanical licenses at government-set royalties without having to seek permission in advance. But it doesn’t grant a blanket license covering all music. Instead, the law requires interactive streaming services to file paperwork called Notices of Intention (NOIs) with copyright owners for each track they want to offer.

This system made sense 20 years ago, when mechanical licenses were needed mostly for recording cover versions of other people’s songs. But today, for services like Spotify, Apple Music and Google Play, with their huge and growing catalogs, it requires them to file over 10,000 NOIs per day.

Yet the real problem isn’t the paperwork: It’s that the music services don’t always know the identities of the songwriters or music publishers for the underlying compositions. They get data feeds from record labels and independent artist aggregators, which sometimes don’t convey that information. These music services hire agencies that are supposed to find the composition rights holders’ identities and send them NOIs.

This is a difficult problem, resulting from decades of incorrect, contested or just plain missing data. Both rights holders and music services are motivated to solve this problem: Rights holders want to get paid accurately and promptly while music services want to lower their administrative burden and their legal risk.

The MMA proposes two major steps to solve the recording-composition matching problem. One is simple: provide a blanket license, as digital radio has for sound recordings and as most digital music services have for performances on compositions. That would eliminate the need for NOIs for each track.

But then someone still has to figure out whom to pay the mechanical royalties for compositions. For that, the MMA calls for appointing a single licensing agency, which would take music play data feeds from the interactive streaming services, figure out the underlying compositions and their rights holders, and pay the mechanicals. The music services would pay administrative fees to the single licensing agency instead of paying the private services they use now.

This would certainly make life easier for the interactive streaming services, and it would eliminate the kinds of lawsuits they are getting now, from songwriters and music publishers, over alleged NOI-related errors. In fact, it’s such a win for the services that music publishers believe they can get them to agree to higher royalties in exchange.

Royalties are set in a process run by the Copyright Office every five years, in which a panel of administrative law judges hears testimony from both sides and determines a rate based on certain economic principles. The MMA proposes changes in those economic principles that music publishers expect will result in higher royalties.

The Problem

The streaming music service, music publisher and songwriter communities are all generally in favor of the MMA. Yet in its current form, it’s something of a lost opportunity.

In addition to higher royalty rates, music creators have been pushing for more accuracy and accountability in royalty processing. Many current royalty allocation processes rely on bad or nonexistent data and are done through less-than-ideal means such as statistical sampling and various types of “educated guesses.” Blanket licenses exist not only for efficiency reasons but also to paper over the various data problems that pervade the industry, particularly on the composition and music publishing side.

The problem of matching recordings to compositions makes payment of streaming mechanicals perhaps the hardest of these problems. Currently there is a competitive market, of sorts, among companies that provide this service, such as the Harry Fox Agency (HFA) and Music Reports Inc. (MRI). (A third player in this space, RightsFlow, was acquired by Google and processes royalties only for Google Play and YouTube.)

Yet the MMA calls for a single agency — a monopoly — to take over this task, and requires that the agency be a nonprofit entity. The agency would have little accountability or oversight, and minimal incentive to improve.

The existing private agencies — all for-profit companies — would not be motivated to serve this function. In fact, the only organization known to be interested is SoundExchange, a nonprofit that serves a similar role for the somewhat easier task of processing sound recording royalties for digital radio. The MMA could be improved by adding provisions for stronger oversight of the mechanical licensing agency, to make up for the lack of economic incentives, as I have suggested elsewhere.

The Upshot

So what are the chances of all four pieces of legislation being enacted? Clearly it’s advantageous to group them all into an “omnibus” package to make passage through a very distracted Congress easier. But as I mentioned, this lays open the possibility that any one of the four bills could derail the package.

Right now, the various lobbying groups are trying to get leverage by playing these bills off one another, by asking for concessions in one bill in exchange for letting another bill move ahead. The biggest factor by far in these negotiations is the NAB.

The RIAA has been lobbying for sound recording performance royalties from terrestrial radio for a long time; the Fair Play Fair Pay Act is just the latest attempt to get this done. The NAB has vigorously opposed it every time.

The NAB has a big advantage in these standoffs, which has little to do with music industry economics and everything to do with congressional representation.

The RIAA represents companies that are based primarily in three states: New York, California and Tennessee (Nashville is a major music industry hub). Digital radio services are predominantly headquartered in California (Pandora, Apple, Google) and New York (Sirius XM). Therefore, bills that involve only those industry segments are simpler to get through Congress.

But AM/FM radio is a different beast. It isn’t concentrated anywhere in particular; for example, the largest terrestrial radio operator, Texas-based iHeartMedia, owns only about 6% of the FCC-licensed radio stations nationwide. In other words, there are AM/FM radio interests in all 50 states, meaning that members of Congress in 47 states could be inclined to oppose legislation like Fair Play Fair Pay.

As a result, the current thinking among some music industry policy wonks is that the music industry will give up on the Fair Play Fair Pay Act in order to get the other three bills passed. In other words, maybe the bus metaphor was the right one after all: The music industry will have to throw Fair Play Fair Play under the Music Bus in order to save it. And the industry’s struggle to adapt its crazy quilt of laws to the evolving digital age will continue.

Article orginally from: forbes.com

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