[by Derek Slater] Of the many issues discussed here at FMC, licensing musical compositions and related reform of the Copyright Act are among the most important. The implications of legislative change are enormous for the nascent online music industry as well as development of emerging and future tools and services. The skinny from the day: potentially revolutionary reforms proposed by Register of Copyrights Marybeth Peters are essentially on ice, and a solution is not much closer then when legislative hearings began on the issue years ago. That result means we all lose, as licensing online music services is stymied.
To understand this complex issue, you’ll need some background. Online music services, particularly on-demand subscriptions, and music publishers have been at an impasse in negotiating rates. Publishers have asked for significant increases in their royalty rates.
In the background of this negotiation is a legislated structure that is dysfunctional, by basically all side’s agreement. There are two copyrights in music, one for the recording and one of the underlying musical composition. Two sets of entities control different parts of the composition right. You need to typically go to Harry Fox Agency to make and distribute copies. That’s “mechanical licensing,” and it’s governed by a statute-set rate (the section 115 compulsory license). (This section also enables people to make cover songs.) To make a public performance, you need to go to a performing rights organization (ASCAP/BMI/SESAC).
From an abstract, fairly sensible perspective, one can tell the difference between an online performance (generally in the form of streaming) and a distribution (a download). But both sets of entities have been asking for payment for a single online use of a single composition, claiming it’s both a distribution and a performance. A related problem is that locating the composition rights holder also isn’t always easy.
This structure has held back the development of on-demand subscription services. It also effects podcasting, which ASCAP and BMI have suggested requires a performance license even though they’re download, and will continue to impact tools yet to come. The debate about section 115 today has to do with subscription services, but two years from now it will be about some other type of service. As Fred von Lohmann pointed out from the audience at today’s section 115 panel, the law needs to be changed in such a way that innovation in services can flourish.
At that panel, both the online services’ and publishers’ grievances were laid out. DiMA’s Jon Potter scoffed at publishers’ request for excessive rates and balked at attempts to get Congress to set the rates, rather than simply define the rights and make them easier to license together. As a matter of common sense he fails to comprehend why webcasting rates shouldn’t be benchmarked against traditional radio, or why an on-demand stream should require a mechanical license. Meanwhile, attorney Josh Wattles (not from the publishers, but speaking ably on their side for the purpose of the panel) pointed out that publishers should get to set their rates in the market; the compulsory license can frustrate market evolution, and publishers have been proficient at getting their works into differentiated markets simultaneously.
That’s not to say that everyone wanted to dump the compulsory license recklessly. Marybeth Peters noted that some songwriters worry that without the compulsory license, they won’t have sufficient bargaining power. David Jones, from the Senate Judiciary Committee but speaking for himself alone, also pointed out that people were hesitant to disrupt the market in this way. In contrast, David Basskin from Canada’s version of Harry Fox pointed out how Canada has successfully transitioned from a compulsory mechanical license.
In any event, Peters has backed eliminating the compulsory license. She put forth a potentially revolutionary proposal in June that would consolidate the licensing structure, so that the current PROs would transform into Music Rights Organizations (MRO) and become a “one-stop shop” for performance, reproduction, and distribution licenses. The current statute-set rate would go away, but she suggested that her changes would provide the necessary incentives for collective blanket licensing of all three rights for all musical compositions in a given MRO’s catalog. Such licensing could be modelled after how performances are currently licensed. Peters herself said that this proposal wasn’t perfect, but she hoped that it would enable a competitive market in which licensed online services could flourish and successfully draw people away from infringing downloads through P2P. Indeed, von Lohmann has argued that her proposal could enable direct licensing of P2P users.
At today’s morning panel, Peters stated this proposal was basically rejected by all involved parties. That was indicated yesterday by BMI’s Fred Cannon, who seemed lukewarm on the idea of the PROs taking on this additional responsibility. Both rate and scope of the reforms continue to be stumbling blocks, and she does not see a solution in sight. She still hopes that there will be a resolution, and she will support and facilitate any proposal that all involved parties can get behind.
And there are certainly numerous proposals. Hearings have been held over the years – you can see some of the latest proposals here. Jones noted benefits and flaws with all of them, and there’s no consensus, except, as Potter noted, that the current system is “screwed up.”
The panel ended with a debate between Potter and an audience member about the minutiae of what the subscription on-demand rate should include and be set at. Focusing on those details seems to miss the bigger picture: creating a licensing structure that will enable future innovation in services, as von Lohmann suggested. Even if a proposal like Peters’ will create short term problems (or at least that’s the fear), it may save us from future licensing deadlocks.
For the moment, the licensing wheels keep spinning in the mud.
[Disclosure: I have worked with von Lohmann at EFF, though I’m often partial to his views regardless.]
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