In a January 23, 2014 op-ed in the Wall Street Journal [subscription required], music legend Burt Bacharach, who is now 85, recognized the need for reform of the legal framework for music licensing to reflect the new music marketplace. He cleverly noted, “The law is not in tune with the digital revolution.” Namely, the current consent decree arrangement between ASCAP and BMI set when vinyl records were the newest technology and last revised before the introduction of the iPod, does not work properly in a world dominated by digital streaming and downloads. The consent decrees apply to online radio services like Pandora. Under this arrangement, for every 1,000 times Pandora plays their song, songwriters earn only about 8 cents. According to Bacharach, this can hardly meet the required "reasonable fees” the consent decrees promise.
Under the consent decree arrangement, ASCAP and BMI are required to grant licenses to the requestor. If the parties cannot agree upon a price for the license, federal judges set the price based on varying rate standards for different services. This system imposes a compulsory licensing and rate-setting scheme, instead of allowing the free market to determine the proper price rights holders should be paid.
As Free State Foundation scholar Seth Cooper wrote in his November 2012 piece, Putting Music Copyright Policy on a Free Market Footing, and in several posts on the Free State Foundation blog, the current copyright licensing royalty regime runs contrary to rule of law and free market principles. Today’s regime arbitrarily discriminates among market players and sets unsustainable, inefficient price controls. Informed by late economist F.A. Hayek’s The Constitution of Liberty, Mr. Cooper argued that a free market oriented approach is superior to a system where the government directly controls prices because it enables market players to set prices according to constantly changing conditions and technologies, account for differences between types of buyers and sellers, and would help ensure transaction efficiency. A free market approach is especially appropriate for today’s competitive music market, given the abundance of alternatives in access to and storage of music available to consumers today, and given the need to remove government mandates that slow and discourage innovation in new disruptive products and services.
Although there have been efforts to address the disconnect between the current music licensing framework and marketplace realities, bills like the Internet Radio Fairness Act of 2012 are a step in the wrong direction. Thankfully, this controversial bill is currently in a state of hibernation, after groups representing artists and sound-recording owners opposed the bill’s proposed changes to the standards by which Internet radio royalties would be set by a panel of Copyright Royalty Judges.
Congress should not attempt to adjust the music-licensing framework to the new music marketplace by imposing new price controls and arbitrary standards for valuation. Instead, the goal of any reforms to existing music licensing laws and regulations should be to allow arms-length transactions between songwriters, artists, and music distribution platforms, labels, and licensing entities to be driven by free market principles.