By David Purcell '91
Any discussion about the music industry of today (and of the future), inevitably leads to a certain theme: copyright law and its role in the digital age and new music industry economy. Whether we're speaking about songwriters, recording artists, record labels, publishers, digital service platforms, or startups, copyright law is at the center of the discussion about how the music industry will continue to evolve in the 21st century and beyond.
Questions regarding the role of copyrighting are not just a result of the digital age and its various implications, including piracy, streaming, home recording, smartphones, and countless DIY opportunities. In fact, much of the discussion is tied to the age and applicability of copyright law to how artists and rights holders create music, how fans consume and experience it, and how music and copyright can generate meaningful revenue in the digital age.
The age of streaming and digital music is a long way from the origins of copyright law. U.S. copyright law has its genesis in England's Statute of Anne (1710), and the U. S. Constitution (Article 1, Section 8, Clause 8). The last major overhaul of this body of law was in the Copyright Act of 1976 (enacted in 1978) and various digital copyright legislation, including the Digital Millennium Copyright Act (DMCA) of 1998.
This article addresses some key points for creators of musical content, whether they are songwriters, recording artists, producers, record labels, publishers, entrepreneurs, digital platforms, or entrepreneurs.
Two key documents will be addressed. The first is the 245-page report Copyright and the Marketplace issued in February 2015 by register of copyrights Maria Pallante, in which she outlined the key considerations in addressing music industry copyright issues in the digital age. The second is an April 2015 follow-up with the House of Representatives Judiciary Committee, The Register's Perspective on Copyright Review.
What's at Stake
For artists, rights holders, and entrepreneurs alike, the ability of artists, companies, and rights holders to generate meaningful revenue from their copyrights for sound recordings and songs in the digital age is what's at stake. The discussion on earning a living from recording and songwriting is not restricted to the United States; it's a point of international dialogue. Recently, France, the home of SACEM, the world's first performing rights organization (PRO), introduced legislation proposing the need for a “minimum wage” for artists in the digital age.
Assessing the music industry of the future will inevitably touch on several key areas for the future of the music industry, including: music consumption, digital piracy, compensation, and revenue generation for artists and rights holders alike. With that in mind, we'll examine some other key points of consideration from Pallante's reports including moral rights, copyright infringement, PROs, the parity in online and digital platforms for sound recordings and musical works, and royalty rates and revenue for artists and rights holders.
U.S. copyright law is primarily steeped in a policy of economic incentive. In granting authors a right to their respective works, the drafters of the Constitution also laid the groundwork for the creation of countless works without the government having to fund authors in the creation of their works.
Copyright law grants a “limited-duration monopoly” to the rights holder and facilitates the ability of the author or rights holder to gain financially from the exploitation of copyrighted works. “Moral considerations” such as whether an artist wants, for example, his songs recorded by another artist or made available on specific platforms, are often addressed in terms of “economics” and not the author's (artistic) message or intent. Alternatively, the Visual Artists Rights Act of 1990 provides for moral rights protection for creators of visual arts and sculptures in the United States. Unlike laws in European counterparts such as Germany and France, U.S. copyright law is relatively silent on the matter of moral rights and attribution regarding copyrighted musical works and sound recordings.
In her April 2015 testimony, Pallante recommended further investigation into the role of moral rights. She reiterated that the “rights of authors have been lost in the conversation. . . . They should be the focus.” Many members and witnesses throughout the hearings identified the issues of individual authors, including attribution and the ability to say no to specific uses, as some of the most important elements of a well-functioning copyright system.
By now, we're used to the refrain of how the Pandora's box of file-sharing has turned the music industry on its head. In many respects it has. Much of the concern in the music industry about the digital age has centered on nonlegal activity, such as peer-to-peer file-sharing. An irony, however, is that much of what concerns artists and rights holders is not copyright infringement, but how to effectively monetize their works on legal platforms such as Spotify, Pandora, Tidal, and YouTube—just a few of the legal services that now “compete” with non-legal file-sharing platforms. While these streaming platforms are, overall, continuing to expand their user and subscription bases, as with any innovation, “cottage industries” of adaptation, or in this case, piracy, abound.
Just as we've seen with the MP3, online streaming infringement is proliferating at a rapid pace. And with millions of music consumers growing up in the age of file-sharing and free music, many of today's music fans are accustomed to streaming music online, whether through a legal platform, such as YouTube, or a nonlicensed streaming platform such as Grooveshark, which in 2015 was officially shut down after nine years of operation and millions of unlicensed performances.
Copyright infringement can lead to felony criminal penalties and charges in instances of willful (or intentional) infringement, whereas acts of illegal streaming presently result in a maximum of misdemeanor charges and penalties.
On this issue, Pallante advocates felony penalties in line with those related to piracy and unlawful distribution. Specifically, she stated, “As streaming becomes a dominant method of obtaining content online, unlawful streaming has no less of an adverse impact on the rights of copyright owners than unlawful distribution.”
In 2014, ASCAP celebrated its 100-year anniversary, and its legacy of important innovations that PROs have created to secure the rights (and revenue generation) of songwriters and publishers.
The age of streaming, however, has ushered in important questions about the future roles of ASCAP, BMI, and SESAC. For example, do publishers need PROs to account for performance royalties on platforms such as Spotify and Pandora when they can work directly with these digital platforms instead?
Historically, PROs have served as an important go-between and advocate for artists and publishers with the thousands of radio and television stations that broadcast their music. In the “golden age” of radio, PROs would be working to track performances on tens of thousands of stations across the United States. However, with music streaming, publishers and songwriters need to work only with a relatively small number of “broadcasters” accounting for millions of performances. While PROs provided a unique service in tracking radio and television broadcasts with proprietary digital “finger printing” technology and tracking methodology, the relatively limited number of licensed streaming platforms should account for each unique performance, and in turn pass on to songwriters and publishers without the intervention of PROs.
Additionally, there is no shortage of debate as to whether ASCAP and BMI should continue to be limited in the scope of how they can represent the rights of songwriters and publishers. At present, ASCAP and BMI are bound by a consent decree dating from 1941, which limits their administrative purview to public performances only, and precludes them from administering other important publishing revenue streams such as mechanical rights and synchronization rights.
Here, Pallante advocates for more input from the legislative process, and from the Copyright Office (rather than the Department of Justice) in determining the way forward for PROs.
Parity in Digital Transmission and Terrestrial Broadcasting
Currently, recording artists and labels/rights holders do not receive performance royalties for terrestrial broadcasts (e.g., on radio and television). It may seem odd that recording artists and labels don't receive royalties for terrestrial broadcasts of their works, but it wasn't until 1972 that federal copyright protection was extended to phonorecords (sound recordings). However, this grant of protection was limited. Specifically, it omitted a right of public performance for sound recordings, meaning that entities such as radio stations and club DJs could play recordings without permission (or a blanket license) from a recording artist or record label.
Historically, as labels earned their income from singles and album sales, the logic was that the more spins on radio stations or in clubs, the more sales and revenue they generated. In fact, radio play was something one hoped for, not discouraged. In fact, labels have spent millions of dollars to get their recordings played on the radio. The practice of independent third-party promotion persists to this day.
While the 1972 provision did not provide for sound recording performance rights, the Digital Performance Right in Sound Recordings Act of 1995 provided for an exclusive right “to perform the copyrighted work publicly by means of a digital audio transmission.” This added a royalty burden for digital platforms such as XM Sirius Satellite Radio, Pandora, Spotify, Tidal, and Apple Music (to name a few).
Additionally, the United States is one of the few countries without a terrestrial performance right for sound recordings, and the ripple effects of this historical exclusion go well beyond the borders of America. Other countries have reciprocated with the United States on this missing right and revenue stream. For example, since United Kingdom recording artists and rights holders do not receive a royalty for radio play in the United States, likewise, American artists are denied royalties for radio play in the U.K. (even though Great Britain typically pays performance royalties for the terrestrial broadcasts of sound recordings for artists and rights holders from countries that recognize this sound recording performance right).
In this matter, the Copyright Office advocates a performance right for sound recordings, and the “Fair Play Fair Pay” Act was introduced in the House of Representatives, and is recommending that licensing and revenue agreements for sound recordings and musical works be consistent for both types of works. Stay tuned for more on this.
Royalty Rates and Revenue for Artists and Rights Holders
Since the advent of the modern recording industry and the “age of the LP,” artists, publishers, and labels have traditionally relied on recorded music sales as a catalyst for their business models and revenue streams.
For example, labels relied on their hefty wholesale prices of $10 or more per CD; artists relied on the touring, merchandising, and royalty opportunities generated by an album's release; songwriters looked forward to their publishing advances and mechanical and performance royalties generated by the release of a new album or single; and publishers, of course, looked forward to their cut of the songwriting pie.
The model of basing campaigns on an album release is changing. Increasingly, more labels and artists are opting to release singles and EPs instead, thus changing potential touring and branding incentives. Historically, many tours and artist brand development have been associated with the release of a specific album.
The digital age is continuing to change and evolve the reliance on recorded music in business models, as well. Yes, people are still consuming and purchasing music at a record pace, but the revenue and royalty numbers aren't adding up in a comparable manner to the industry model based on sales. Instead of reaping mechanical royalties and artist royalties based on album sales, artists (and rights holders) are now realizing that they can't rely on the compensation models that have traditionally fueled their plans. In short, artists and rights holders are finding that revenue from streaming services doesn't stacking up to revenue generated directly, or indirectly, from recorded music sales.
Prince was once asked about his practice of removing “unauthorized” content from YouTube, and his response was relevant for many artists and rights holders today. “Since YouTube doesn't pay equitable licensing fees, isn't this a nonsensical question? Peace,” the artist stated.
Digital service platforms have an important argument to make, however. Unlike traditional terrestrial broadcasters, they have a double royalty burden. That is, they are required to pay both songwriters and publishers, plus recording artists and record labels for the performance of their works. But they already pay out a significant percentage of their earnings to artists and rights holders.
The criticism of the revenue generated by streaming platforms goes deeper than the total amount paid out to artists and rights holders, though. Not only can there be significant differences in compensation rates based on the platform and subscription type (for example, free noninteractive Internet radio; paid noninteractive internet radio; free noninteractive streaming services; paid interactive streaming services, etc.), but also in the amount that songwriters and publishers are paid and the amount that record labels are paid for streams. It can be as substantial as a 9:1 difference in favor of sound recordings.
For this issue, the U.S. Copyright Office recommends parity in the treatment of sound recordings and musical works with regard to both terrestrial and digital public performances.
Looking Toward Tomorrow
Don't let the conversation on these vital copyright issues stop here. Join in the discussion. Contact your congressional representative and voice your opinion with key industry organizations (A2IM, the Future of Music Coalition, ASCAP, BMI, SESAC, NMPA, and others).
David Purcell is an attorney in New York City specializing in copyright issues.