Music Licensing Regime—and Labels’ Terms—Blamed for Artists’ Woes

“We've gone around in circles” for years with Congress on simplifying the licensing regime, said Tanya Sandros, deputy general counsel of the Copyright Office. But “it’s been exciting to see the parties over time come together” on rate agreements for interactive streams, downloads and ringtones, even with continued disagreements over Copyright Royalty Board-set rates. “We're in the cusp of innovative experimentation,” held back only by the licensing regime, said Google Senior Policy Counsel Johanna Shelton. “Try to clear a song for global distribution. It’s actually, practically impossible.” The U.S. problem is “too many lawyers,” Jenner said. “We've got to start thinking radically” about getting copyright back to serving as a “useful device.”

In 1999 the term “MP3” was a more popular search on Yahoo than “sex,” yet record labels blocked MP3 sales for the next several years, said Tim Quirk, vice president of music programming for Rhapsody. That helped foster an environment of illicit swapping: Licensing “moves so slowly when you try to do it right [that] the consumer has basically just passed us by.” Venture capitalists will show the door to any entrepreneur who tries to sell a business model that requires proactive licensing with record labels, Quirk said. “We were in that position of reacting” to Napster, said RIAA General Counsel Steve Marks, but major labels “to some extent” have simplified their business deals with service providers.

“There’s a lot of short-term thinking” among major label executives, since “their bonus is predicated on what they drive for that quarter,” Quirk said. Sustainable business deals aren’t popular with music publishers either, he said, noting Rhapsody and others getting sued when publishers find songs without full clearance on those platforms. “There’s not a reality in the policy,” said Shelton, noting the continuing disputes over whether a so-called server copy, used to deliver a stream, must be licensed as well. Sandros said the problem was largely “middlemen” such as ASCAP that demand a cut of the revenue and often slow the licensing process, at the expense of artists -- which is why the Copyright Office proposed a “one-stop shop” for clearing all rights.

Labels’ focus on stopping piracy and extending copyright terms is “bonkers,” Jenner said. “Copying can’t be stopped, and any attempt to control copying is doomed to failure in the digital world.” Artists are frustrated about the secrecy of major business deals, such as YouTube’s recent agreement with the U.K.’s PRS for Music collection society and labels’ terms with Nokia for its Comes with Music mobile platform, he said. They'd also like to know about the extent of label investment in streaming music service Spotify: “Money is being made in a very obscure fashion.” The U.S. Justice Department is also at fault for promoting “hysteria” over antitrust actions, keeping music companies from coordinating with each other to expand the revenue pie, Jenner said. Consumers “don’t give a damn” which label their music comes from, he said to loud applause.

Quirk and the RIAA’s Marks spent much time arguing over whether Rhapsody, whose subscription model generally hasn’t caught on with consumers, was fundamentally wounded by label terms at the start. They agreed service models are the future of music, with Marks saying the problem is “nothing has turned out to be scalable yet.” Quirk retorted, to loud applause: “It’s not scalable at the rates you're licensing.” Rhapsody had to negotiate a “fifth right” to get its new iPhone application licensed, in addition to its current license, Quirk said. “Maybe you ought to negotiate a better deal the first time around,” Marks said, pointing to limitations that Rhapsody agreed to. The RIAA clearly had the upper hand and Rhapsody had no choice, Quirk said: “It’s pretty damn offensive” to blame Rhapsody for the situation it’s in.

Licensing through ISPs or the ‘Application Layer'?

Music licensing isn’t stuck in all cases on the Hill, Sandros said, pointing to “progress” on the Performance Rights Act to make broadcasters pay performance royalties. Marks said the new NAB head, former Republican Sen. Gordon Smith of Oregon, may show increased willingness by broadcasters to negotiate toward a royalty bill they can support. ISP licensing would be a favorable development for labels but it again raises antitrust concerns with the Justice Department, and labels haven’t found a “sweet spot” to relieve concerns, he said. Rhapsody could find millions of new customers if it made deals with ISPs, wary of becoming “dumb pipes” that only carry others’ traffic, Marks said. Jenner again challenged Justice to let music groups bargain collectively, as it does sports leagues and farmers. The comment drew loud applause. Roberta Katz, special adviser for technology in the Antitrust Division, said Jenner and others should talk with Justice about an exemption.

Shelton said she was nervous to hear discussions of “network level” licensing when “real-time licensing at the application layer” -- as with YouTube’s ContentID system for identifying and monetizing copyrighted clips -- has already shown its value. ISP-level licensing may prevent more competition at the application layer, she said. Rhapsody’s Quirk said he favors a compulsory license reflecting SoundExchange’s structure: Half of royalties paid directly to artists.

Speakers disagreed about whether the industry needs another statutory rate-setting body like the Copyright Royalty Board (CRB) under a streamlined licensing system. Marks called a “voluntary blanket license” agreement preferable. Quirk, a regular participant in CRB hearings, called it a “messy, contentious process” that’s necessary. “As painful and as loud as it’s going to get, it’s going to be better than what we have today.” -- Greg Piper

Future of Music Notebook …

FCC Chairman Julius Genachowski said net neutrality and copyright protection “can and must coexist.” The commission isn’t going to harm the “safe, secure, spam-free experience” that users expect online in its neutrality rulemaking, he said. But it wants to ensure that small labels without commercial airplay -- such as Merge Records, home to popular bands Arcade Fire and Spoon -- can compete with bigger labels, Genachowski said. That won’t be possible until the whole country is connected to the Internet, though, he said. Genachowski cited surveys that only half of country-music fans have Internet access at home and three in four Fortune 500 companies post job openings on the Internet alone. He promised to work “collaboratively” with other commissioners to tackle “hard questions” about the Internet’s future. He received a musical introduction from New Orleans brass band Bonerama, and Genachowski read a poem by a staff member “riffing” on Bruce Springsteen, calling the Internet a “telecom thunder road.”

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Net neutrality at its core is a First Amendment issue, Sen. Al Franken, D-Minn., said Monday at a Future of Music Coalition conference. Calling “the Web” a common carrier that’s under threat of network management -- “code for finding ways to squeeze more cash out of their networks” -- Franken said that before it was acquired YouTube could have been stifled by Google’s subpar video product without the “meritocratic” system of neutrality. But the absence of neutrality also brings the U.S. one step closer to Iran, where ISPs use deep-packet inspection in real time to block content, Franken said. U.S. companies are “taking the same or similar technology out for a test ride,” he said, citing Verizon’s blocking pro-choice text blasts and Comcast’s blocking “lawful peer-to-peer applications.” Giving preference to some kinds of content over others is inherently harmful, Franken said. “Free speech limited or free speech delayed is the same as free speech denied,” he said to loud applause. “In the absence of strong legislation” to prevent ISPs from managing content, rural customers like his constituents will be harmed most. “ISP profit margin should never come at the cost of free speech,” Franken said. He was less clear on how content companies can protect their copyrights under neutrality rules. Echoing FCC Chairman Julius Genachowski, Franken said neutrality should expressly protect “lawful” applications, but he added that there’s an “enormous question” on how to identify what’s lawful. Citizens should be allowed to directly complain to the FCC and get damages for neutrality violations, he said. Told by an audience member that deep-packet inspection of the kind that Iran uses could identify illicit content online, Franken was cautious. “I don’t want a ’tubes’ moment here,” he said, alluding to the notorious description by former Sen. Ted Stevens, R-Alaska, of the Internet. Franken also said he wants to ensure that small radio stations pay “just a very minimal part” of any performance royalties in the Performance Rights Act (S-379).