Copyright Updates Needed to Fix Music Market Distortions

When markets experience dramatic change, laws addressed to older business models and technologies can distort or inhibit free market-oriented activities that are dependent on newer models and technologies. The market distortion problem is increased when laws left on the books are based on industrial policies favoring certain market segments that no longer exist.

Copyright law suffers from such market-distorting effects because many of its provisions are based on late 20th century conceptions of a marketplace in which Internet use was far less common and relied largely on slow dial-up service. This poses significant difficulties to copyright holders seeking to protect their property rights from infringement.

Also, certain copyright provisions apply different types of protections or different royalty rates to different types of services without any rational basis – instead of equal standards. Such shortcomings in the law adversely impact copyright holders in sound recordings by unfairly harming their ability to bargain for financial returns in licensing their music to different music delivery services. Copyright law needs updating to fix these distortions of the music market.

Highlighting one particular problem, a number of high-profile music artists – ranging from Taylor Swift to Paul McCartney to Trent Reznor – recently have leveled harsh criticisms against YouTube for hosting copyright infringing content and for lackluster anti-piracy efforts. Complaints have also been voiced about low revenues received from the site.

A report titled "How Google Fights Piracy" appears as a partial response to those criticisms. The report touts YouTube proprietary systems for digital rights management and for combating infringing uploads of copyrighted video and music content by its users. It also points to a claimed $3 billion in multi-year aggregate payments made to copyrighted content owners by YouTube for on-demand ad-supported streaming.

By itself, perhaps $3 billion may seem to be an impressive figure. But the shine wears off when one considers the larger context of annual music consumption and revenues. In 2015, on-demand ad-supported music streams generated only $385 million in sales revenues. More than 150 billion song streams generated only $227 million. These numbers fall short of the $416 million in revenues generated that very same year by 17 million vinyl record sales.

It is true that copyright owners in the sound recording and motion picture markets bargained with YouTube, granting permission for streaming of copyright content in exchange for revenues. However, copyright holders have pointed to the prevalence of infringement on user-upload sites such as YouTube and the inadequacy of existing copyright enforcement mechanisms. It's out of apparent necessity to secure returns, however meager, for their creative work – rather than no returns at all – that copyright holders consent to low rate deals with ad-based streaming services.

Meanwhile, copyright holders face constraints on financial returns from other music delivery platforms. Under copyright law's compulsory licensing system, subscription satellite and Internet radio services can transmit copyrighted sound recordings at an artificially low rate under Copyright Act Section 801(b). And broadcast radio stations are exempt from having to pay any royalties to copyright holders when they air copyrighted sound recordings.

Ultimately, assessments of fair financial returns to copyright holders in sound recordings relative to economic values offered by online streaming platforms should be determined through the free market. But the rules of the market have long since become outdated. Copyright law needs updating in a free market-oriented direction to reflect digital age realities.

Much of copyright law predates the rise of high-speed broadband, emergence of user-upload streaming sites, and the eclipse of CDs by digital downloads. Last-century copyright law supplies a backdrop in which copyright protection is uneven and in some cases inadequate to protect against online piracy and infringement. Copyright law must be updated to ensure that marketplace negotiations between copyright holders and music delivery services are not so weighed down by the threat of piracy and infringement. That also means copyright law must treat different music and media platforms equally unless there is a rational basis for treating them disparately. 

A needed update to copyright law should include at least three important reforms:

First, the notice and takedown system for combating infringing Internet postings of copyrighted content needs to be revamped. The system was established back in 1998, a time when user-uploading on streaming sites was nil. The proliferation of those sites as well as Internet users and web addresses generally has made the system increasingly time-consuming and costly for copyright holders to use in obtaining prompt takedowns of infringing content. Judicial rulings have also restricted the scope of available protections, thereby requiring copyright holders to file numerous, repeated, webpage-specific takedown requests with online service providers when infringement of specific copyrighted works are clearly known to be widespread on a given online platform or website. The burdens are especially pronounced for individual copyright holders. The notice and takedown system should include simpler, more streamlined options for addressing such widespread and repeat infringement.  

Second, satellite and Internet radio subscription services should receive equal treatment – not preferred treatment – under the copyright law’s compulsory licensing system. Compulsory licensing may be a less-than-ideal alternative to a truly free market system. But mandating special low rates under the Section 801(b) standard for satellite radio subscription services is unjustifiable. At the very least, the licensing rates should seek to approximate free market values. Thus, satellite radio subscription services should be subject to the same "willing buyer/willing seller standard" that governs other music delivery services.

Third, the copyright royalty exemption for broadcast radio should be eliminated. Broadcast radio should be treated like other music delivery services instead of given a free pass to play copyrighted sound recordings. Like other services, if broadcast radio stations wish to air copyrighted sound recordings, they should bargain for performance rights to do so – or short of that, pay royalties according to the "willing buyer/willing seller" rate standard.

One doesn't have to side with YouTube, satellite and Internet radio, broadcast radio stations, recording companies, music artists or other copyright holders to recognize that existing copyright law is distorting free market negotiations for delivering music content. Copyright law must be modernized to match the 21st century world of high-speed broadband and ubiquitous Internet user-upload services. Equal treatment of music delivery platforms and more effective tools to combat infringement are essential to putting copyright on a firmer free market-oriented footing.