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2/5. The Copyright Office (CO) released a
report [245 pages in PDF] titled "Copyright and the Music Marketplace".
Introduction. This report states that "There is a widespread perception
that our licensing system is broken. Songwriters and recording artists are concerned that they
cannot make a living under the existing structure, which raises serious and systemic concerns
for the future. Music publishers and performance rights organizations are frustrated that so
much of their licensing activity is subject to government control, so they are constrained in
the marketplace. Record labels and digital services complain that the licensing process is
burdensome and inefficient, making it difficult to innovate."
However, "While there is general consensus that the system needs attention,
there is less agreement as to what should be done."
The report offers numerous proposals. It contains recommendations that could be implemented
by the Congress. Although, it does to contain draft legislative language. It further recommends
that the Copyright Office be given rulemaking authority. It states that the statute should merely
set out the "essential elements", rather
than "highly detailed statutory prescription".
The CO recommends expanding of the powers of both the CO and
Copyright Royalty Board (CRB), and a diminishment of
the roles of the Department of Justice (DOJ) and federal courts.
The CO's recommendations, if enacted into law, would likely have numerous effects,
including increasing compensation for songwriters, increasing costs for music
streaming services (which could increase prices for consumers), and increasing
costs for terrestrial broadcasters (which are not allowed to charge consumers).
The report recommends extending the public performance right in sound
recordings to terrestrial radio, fully federalizing pre-1972 sound recordings,
and adopting a uniform market-based ratesetting standard for all government rates.
The report recommends that establishing rates for the public performance of musical works
be shifted from the federal courts to the CRB. It recommends that music publishers be allowed
to withdraw specific categories of licensing rights from their authorizations to the Performance
Rights Organizations (PROs) -- that is, the American Society of
Composers, Authors and Publishers (ASCAP), Broadcast Music
Inc. (BMI), and Society of European Stage Authors and
Composers (SESAC). The report also recommends allowing bundled licensing of mechanical and
performance rights.
The report also proposes incentivizing market players to create a public database, that
would, among other things, make usage and payment data available to rightsholders.
This report describes the current regulatory regime, and addresses the economic incentives
and interests of the various participants in the music market place. The CO is acting as an
arbitrator among the various organized interests with conflicting objectives regarding how the
legal regime for music licensing should be structured. The CO addresses how money is to be made
by the music industry, and how industry wide profits might be allocated among various
participants.
This report gives scant attention to consumer welfare. And, in so doing, it leaves untouched
consumer and societal interests in the creation of new great music. This report does not address
how the music licensing regime may affect the quality, compositional creativity, lyric expression,
or artistic or literary merit of works being written, performed and recorded. A recording of Felix
Mendelssohn's Violin Concerto in E Minor, like Billy Ray Cyrus's recording of "Achy Breaky
Heart", is merely a "sound recording". Anything and everything is just
"content".
Recommendations. The first proposal is to "Regulate musical works and
sound recordings in a consistent manner."
The report states that "at least in the digital realm, sound recordings and
the underlying musical works should stand on more equal footing. The Copyright
Office's approach would offer a free market alternative to musical work owners,
in the form of an opt-out right to withdraw specific categories of rights from
government oversight in key areas where sound recording owners enjoy such
benefits -- namely, interactive streaming uses and downloads."
The report recommends extending the public performance right in sound
recordings to terrestrial radio broadcasts. "Apart from being inequitable to
rightsholders -- including by curtailing the reciprocal flow of royalties into
the United States -- the exemption of terrestrial radio from royalty obligations
harms competing satellite and internet radio providers who must pay for the use
of sound recordings. Assuming Congress adopts a terrestrial performance right,
it would seem only logical that terrestrial uses should be included under the
section 112 and 114 licenses that govern internet and satellite radio."
The CO has long recommended extending the public performance right in sound
recordings to terrestrial radio. And, bills have been introduced in the Congress
to accomplish this. However, this remains a controversial issue, and no bill has
been enacted. Broadcasters vehemently oppose this proposal.
Dennis Wharton of the National Association of Broadcasters
(NAB) stated in a release
that "As it has for decades, the Copyright Office proposes music licensing recommendations looking
only through the lens of copyright owners. What cannot be denied is that the U.S. music industry
is the envy of the world, aided by a legal framework that enables 244 million listeners to enjoy
free and local radio every week. We're pleased that Congress recognizes the unparalleled promotional
value of broadcast radio, and has rejected a punitive new fee on local stations."
In contrast, Michael Huppe, head of the SoundExchange,
stated in a
release that "the most egregious injustice in our music licensing system" is
"that artists and labels are not compensated for the use of their work by the $17
billion AM/FM radio industry."
Similarly, Cary Sherman, head of the Recording Industry
Association of America (RIAA), stated in a
release that the CO "recognized that it is time to fix the system to
ensure that all creators are paid fair market value for their work, regardless
of the platform on which their work is used. For example, a performance right
for FM and AM radio is long overdue. 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 report also recommends fully federalizing pre-1972 sound recordings.
Sherman added that "artists and labels behind iconic recordings made before 1972 deserve
to be compensated by digital radio outlets like Pandora and Sirius."
The report also recommends adopting a "uniform market-based ratesetting standard for all
government rates".
The report finds that "Regulation of music publishers and songwriters is particularly
pervasive: the two most significant areas of their market (mechanical and performance licensing)
are subject to mandatory licensing and ratesetting. Antitrust concerns have been the traditional
rationale for government intervention. To be sure, where particular actors engage in
anticompetitive conduct in violation of antitrust laws, that conduct should be addressed. But
compulsory licensing does more than that -- it removes choice and control from all copyright
owners that seek to protect and maximize the value of their assets." (Parentheses in
original.)
Thus, "certain aspects of the compulsory licensing processes can and should
be relaxed."
The report proposes that "the function of establishing rates for the public performance
of musical works -- currently the province of federal district courts under the consent decrees
-- be migrated" to the CRB. The DOJ's Antitrust
Division's ASCAP and BMI consent decrees are also under review by the DOJ.
The report also recommends that the prohibition contained in
17 U.S.C. § 114(i) "that
currently prevents ratesetting tribunals from considering sound recording performance royalties
be eliminated".
The report recommends that "music publishers should be able to withdraw specific
categories of licensing rights from their authorizations" to the Performance
Rights Organizations (PROs) -- ASCAP, BMI, and SESAC.
It adds that "performance rights should be limited to digital rights
equivalent to those that the record labels are free to negotiate outside of
sections 112 and 114 -- essentially, interactive streaming rights for digital
services. Publishers that chose to opt out would be required to provide a list
of their withdrawn works and other pertinent information to a central source,
such as the general music rights organization (``GMRO´´) discussed below. In
addition, the Office believes that songwriters affiliated with that publisher
should retain the option of receiving their writer’s share of royalties directly
through their chosen licensing collective."
The report also recommends allowing "bundled licensing of mechanical and
performance rights. Industry participants support increased bundling of rights
-- i.e., reproduction, distribution, and performance rights -- in unified
licenses to facilitate greater licensing efficiency."
The report also contains numerous recommendations regarding mechanical licensing and
17 U.S.C. § 115. For example, it
recommends permitting "collective licensing of mechanical rights but with an opt-out right
for interactive streaming and download uses", establishing "blanket licensing for
digital uses under section 115", and giving publishers an audit right under Section 115.
The report finds that the statutory license regime under
17 U.S.C. § 112 and
17 U.S.C. § 114, which permits
qualifying digital services to engage in noninteractive streaming activities at a CRB-determined
rate, "seems to be working reasonably well".
However, it offers recommendations: "Consider ratesetting distinction between
custom and noncustom radio", "Allow fine-tuning of technical aspects of the
license through the exercise of regulatory authority", "Consider permitting
SoundExchange to process record producer payments", and "Allow SoundExchange to
terminate noncompliant licensees".
The report also recommends creating "a unified statutory licensing scheme for
public broadcasters".
The report finds that "accurate, comprehensive, and accessible data, and
increased transparency, are essential to a better functioning music licensing
system". It states that "it is essential to make reliable usage and payment
information available to rightsholders".
It recommends establishing "incentives through the statutory licensing
scheme for existing market players to create an authoritative public database".
The report also suggests that music publishers be allowed "to opt out of the
statutory licensing system and pursue direct negotiations". Also, "In the case
of direct deals for rights covered by an MRO or SoundExchange, the Office
recommends allowing songwriters and artists to elect to receive their shares of
royalties from the licensee through their chosen licensing entity."
Matt Schruers of the Computer and Communications
Industry Association (CCIA) stated in a
release that "While it is commendable that the Copyright Office acknowledges that
transparency in the music marketplace is essential to ending inefficiency and
abuse, many of its recommendations would put at risk the licensing structure and
platforms that play music legally and compensate music creators."
He added that "Policies that would unfairly discriminate against digital
technologies and further consolidate market power among a few dominant
rightsholder corporations will injure innovation, artists, and listeners alike."
Lee Knife, head of the Digital Media Association,
stated in a
release that "The Copyright Office missed a significant opportunity to truly advance
copyright, music licensing and the music marketplace with its just released report. 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."
Framework for the Licensing of Musical Works. Next, the report proposes "an
updated framework for the licensing of musical works" that would be based upon music rights
organizations (MROs), and one GMRO, a nonprofit entity designated, and regulated, by the
government.
An MRO would have the "ability to administer, and bundle, performance and mechanical
rights on behalf of the publishers and songwriters it represented. It would also collect and
distribute the royalties due under such licenses." Current PROs, including ASCAP and BMI,
could qualify as an MRO. To the extent they chose to opt out of the blanket statutory system,
publishers and songwriters would license their public performance and mechanical rights through
MROs.
The report states that "Each MRO would enjoy an antitrust exemption to negotiate performance
and mechanical licenses collectively on behalf of its members -- as would licensee groups negotiating
with the MROs -- with the CRB available to establish a rate in case of a dispute. But MROs could
not coordinate with one another and would be subject to at least routine antitrust oversight."
In addition, "Each MRO would be required to supply a complete list of the publishers, works,
percentage shares and rights it represented, as well as the MRO’s licensing contact information,
to the GMRO, and would be obligated to keep that information current. "
Also, "MROs would also be responsible for notifying the GMRO of any members that had
exercised opt-out rights by providing the relevant opt‐out information, including where a
direct license might be sought, so potential licensees would know where to go for license
authority."
The "general music rights organization" or GMRO "would be responsible for
maintaining a publicly accessible database of musical works represented by each MRO, which
would incorporate data supplied by the MROs and other authoritative sources. The GMRO would
actively gather missing data, reconcile conflicting data, and correct flawed data, and
would also provide a process to handle competing ownership claims."
The report states that the GMRO "would also incorporate sound recording data --
presumably from SoundExchange -- into the public database, and be responsible for developing
additional data that matched sound recordings with musical works to facilitate more efficient
licensing."
The GMRO "would also serve as the default licensing and collection
agent for musical works (or shares of works) that licensees were unable to
associate with an MRO or opt-out publisher. Services with usage-based payment
obligations would transmit records of use for unmatched works, along with
associated payments and an administrative fee, to the GMRO."
The report states that the GMRO "would then
attempt to identify the MRO or individual copyright owners and, if successful,
pay the royalties out. If unsuccessful, the GMRO would add the usage record to a
public unclaimed royalties list and hold the funds for some period of time -- e.g.,
three years -- to see if a claimant came forward. As is the case with SoundExchange,
after that period, the GMRO could use any remaining unclaimed funds to help
offset the costs of its operations."
The GMRO would be funded by "copyright owners and users", mostly from "fees
charged to users of the section 112, 114 and 115 licenses."
More Reaction to the Report. The National Music
Publishers’ Association (NMPA) stated in a
release that
"We applaud the recognition that music creators should be fairly compensated.
However, while there is much to like in this report, we hope that Congress
rejects any further regulation of songwriters. It is critical that songwriters
are given the freedom of other intellectual property owners -- to sell their
creations in a free market. Until they can do so, they will continue to be
treated unfairly by the very industry they fuel."
Paul Williams, head of the ASCAP, stated in a
release that "the current music licensing
system needs reform and fast. The report emphasizes how the current system
undervalues musical works -- something many of our members experience daily. The
many proposed updates -- particularly recommendations intended to make the system
more equitable for songwriters -- underscore yet again the inefficiency of the
current system for music fans and creators alike. As outlined in the report, the
current marketplace is strained by the 70-year old consent decree regime and is
not appropriately responsive to the free market, particularly in our new digital
world."
Michael Huppe, head of the SoundExchange,
stated in a
release that "all creators should receive fair pay, on all platforms and technologies,
whenever their music is used." Also, the CO report "reaffirms that all users of music
should play by the same rules and compensate creators at fair market rates. The current system
of disjointed rate standards is tantamount to picking winners and losers based upon the accident
of their technology, rather than the merit of their business model."
Lee Knife, head of the Digital Media Association, stated in a
release that "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. 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."
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Rep. Farenthold (at left) stated in a
Sherwin Siy (at right) of the
