News & Events

Chicago, March 2, 2015

Becker Authors Pair of Law Bulletin Articles on Copyright and the Music Marketplace

Entertainment and Media Law Practice Group Chair Jeffrey S. Becker authored a two-part series for the Chicago Daily Law Bulletin on changes that may come related to copyright and the music marketplace.

To read the two articles, please see below or click these links: 

Copyright changes impact music marketplace
Music marketplace due for meaningful copyright reforms

Copyright © 2015 Law Bulletin Publishing Company.  All rights reserved.  Reprinted with permission from Law Bulletin Publishing Company.

Copyright changes impact music marketplace
For several years, the Copyright Act has been criticized for the failure of its antiquated provisions to effectively address innovative and constantly evolving aspects of the music industry.

This criticism is not without merit, of course, given that the Copyright Act was written before anyone could have envisioned the advent of a digital music marketplace. A marketplace that is comprised of consumers who download music, or who on an increasingly regular basis subscribe to streaming services, without ever owning the music they listen to.

It is for this reason the U.S. Copyright Office published an initial notice of inquiry in March 2014 requesting public comment on issues affecting the existing music licensing regime.

On Feb. 5, the office released a 245-page report entitled “Copyright and the Music Marketplace” that follows public comment from interested parties, including music industry associations, service providers, technology companies, artists and creators. According to the office, its “review of the issues has confirmed one overarching point: that our music licensing system is in need of repair.”

The report presents an array of recommended changes to the Copyright Act and a sweeping overhaul to the current music licensing environment. If adopted, these changes will have a substantial effect on the music marketplace and all of its members.

This article, the first of two parts, explores some of the fundamental changes recommended by the office.

According to the copyright office, the report “suggests ways to reshape our music licensing system to better meet the demands of the digital era.” Indeed, the current licensing system, “while perhaps adequate for the era of discs and tapes, [is] under significant stress. From a copyright perspective, we are trying to deliver bits and bytes through a Victrola.”

The office identified consensus among study participants on four key principles:
  • Music creators should be fairly compensated for their contributions.
  • The licensing process should be more efficient.
  • Market participation should have access to authoritative data to identify and license sound recordings and musical works.
  • Use and payment information should be transparent and accessible to rights owners.
With the above principles in mind, the office’s recommendations contemplate “a series of balanced tradeoffs among the interested parties to create a fairer, more efficient and more rational system for all.”

Primary among these changes are proposed modifications to the way in which the Copyright Act treats sound recordings, which for many years have received far less rights (and corresponding income) than their corresponding musical works.

The office recommends amending the Copyright Act to provide full federal protection to “pre-1972 sound recordings,” which has been a topic of strong debate over the past several years. As currently written, the Copyright Act does not provide protection to sound recordings fixed prior to Feb. 15, 1972. Rather, these recordings are protected only under state common law.

The office recommends, as it has for some time now, bringing these pre-1972 sound recordings “within the scope of federal copyright law, with the same rights, exceptions and limitations as more recently created sound recordings.”

Not only would full federalization of pre-1972 sound recordings provide performers with the same rights as owners of the musical works embodied in these recordings, it would “improve the certainty and consistency of copyright law, encourage more preservation and access activities and provide the owners of pre-1972 sound recordings with the benefits of any future amendments to the Copyright Act.”

Consistency is of utmost importance today, given several recent rulings in California and New York, which have held that unauthorized public performance of pre--1972 sound recordings violates applicable state laws, including common law copyright.

These rulings were entered in cases filed against satellite radio broadcaster SiriusXM, but “the reasoning employed in these decisions is not expressly limited to digital performances (i.e., Internet streaming and satellite radio); they thus could have potentially broad implications for terrestrial radio … as well.”

The average music listener may not realize that an artist who performs on the sound recordings you hear on terrestrial radio does not receive any money for that public performance (and this is true with respect to all sound recordings, not merely those fixed prior to Feb. 15, 1972). Rather, only individuals who write the underlying musical work are compensated.

The copyright office therefore suggests adopting a “terrestrial performance right for sound recordings,” which would provide parity among a song’s writers and performers and will allow for more fair competition between terrestrial radio broadcasters and the Internet and satellite radio providers who are already required to pay for use of these sound recordings.

According to the office: “In a world that is more and more about performance and less about record sales, the inability to obtain a return from terrestrial radio increases the pressure on paying sources. The market distorting impact of the terrestrial radio exemption probably cannot be overstated.”

Part 2, which will be published Wednesday, will highlight additional recommended modifications to the Copyright Act and American music marketplace.

Music marketplace due for 'meaningful' copyright reforms

This column, the last of two parts on the U.S. Copyright Office's report "Copyright and the Music Marketplace," discusses several fundamental changes the office recommends for the way in which the American music marketplace operates. 

(Part 1, which appeared Tuesday, examined suggested changes in the treatment of musical sound recordings to better account for the digital marketplace.)

Under the current licensing regime, songwriters and publishers coordinate with performance rights organizations, or PROs, which administer rights associated with the “public performance” of a songwriter’s music, such as when it is performed at a live event or on the radio.

PROs frequently provide blanket licenses to companies for use of millions of songs at one time. Songwriters also are entitled to issue “mechanical licenses” when their music is recorded onto physical products (such as CDs), downloaded or streamed through a variety of digital services.

Mechanical licenses are not issued by the PROs, however, and cannot be licensed through the use of blanket licenses. Music users often complain that the song-by-song mechanical licensing requirement of the Copyright Act makes the licensing process administratively daunting for online providers who “seek licenses for millions of works.”

The office therefore recommends modifying the framework of the statute to encourage bundled licensing, which “would eliminate redundant resources on the part of both licensors and licensees.” According to the office, this could conceivably be accomplished by enhancing the role of PROs to become more general “music rights organizations” capable of administering not just performance rights but mechanical and other rights as well.

Significantly, the office also recommends allowing songwriters to partially withdraw rights in their musical works from certain compulsory licensing schemes. While sound recordings are subject to compulsory licenses for use in non-interactive streaming services (Pandora, satellite radio), they are otherwise licensed by their owners in the free market. The licensing of musical works, however, are regulated both in the area of mechanical licensing and public performance.

Songwriters and publishers therefore complain that, especially in the online world, the nature of this compulsory licensing framework “does not permit them to control the use of their works or seek higher royalties.”

In an effort to restore control over these musical works to their owners, the copyright office proposes that, at least in the digital realm, “where sound recording owners have the ability to negotiate digital rates in the open market, so should owners of musical works.”

To accomplish this, the copyright office recommends that owners of musical works be permitted to opt out of certain statutory licensing schemes in the areas of interactive streaming and digital downloads so they may negotiate fair market rates for use of musical works in these areas.

Of particular note, this opt-out right would permit songwriters to deny a licensee’s request to record a cover version of a musical work to the extent that the recording would be disseminated by interactive streaming or digital download.

In sum, an artist who produced a cover recording of a musical work would still be able to obtain a compulsory license to sell physical copies of the song, but he or she would need to obtain a voluntary license from the songwriter to post the recording on Spotify or iTunes. This voluntary license, especially for popular songs, will likely be much more expensive than the current compulsory rates, which for digital downloads is 9.1 cents.

While the copyright office believes that an effort should be made to allow for the fair-market negotiation of licenses whenever possible, when this is not possible, “all government rate-setting processes should be conducted under a single standard, especially since the original justifications for differential treatment of particular uses and business models appear to have fallen away.”

Thus, to the extent possible, the office recommends that all rate-setting activities, whether on sound recordings or musical works, be migrated to the Copyright Royalty Board, since industry rate-setting is already a primary function of the CRB.

The CRB would step in to assist in setting rates only when the parties are unable to agree on one. If the CRB intervenes, it should implement a procedure “designed to achieve to the greatest extent possible the rates that would be negotiated in an unconstrained market.”

The copyright office recognizes that “any such opt-out process would need to be carefully managed to ensure licensees did not face undue burdens in the licensing process as a result.” For this reason, the office also proposes the formation of a general music rights organization, with which publishers would publicly identify those uses subject to withdrawal and where a license might be sought.

While the report was released only two weeks ago, several interested parties have released responses. The Recording Academy lauded the report for adopting its recommendation for the implementation of fair-market pay and terrestrial performance rights.

Meanwhile, the Digital Media Association cautioned that many of the report’s recommendations “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.”

Regardless, nobody can dispute the report’s fundamental premise: “The time is ripe to question the existing paradigm and consider meaningful change.”

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