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Proposed changes in copyright law could render online music streaming more expensive

Pulkit Chandna | Feb. 12, 2015
Music copyright law is a mess, but the changes the U.S. Copyright Office is proposing might not help.

So far so good, right? But this is where it starts to get ugly. The current licensing framework is hugely fragmented and outmoded, especially when it comes to licensing and rate-setting of musical work rights.

While musical works are licensed for mechanical use on a song-by-song basis under Section 115 of the Copyright Act, more than 90 percent of public performance rights in the U.S. are distributed en masse by the Publisher Rights Organizations (PROs) ASCAP and BMI. This means a licensee has the right to use any of the musical works in the PRO's collection).

Likewise, two completely different rate-setting standards are currently in use for the two licenses: For mechanical licenses there is the Section 801(b)(1) standard, and for public performance rights a "reasonable fee" standard that is included in the longstanding antitrust consent decrees ASCAP and BMI are bound by.

Perhaps the only thing common between them is the immense dissatisfaction they have caused across the ranks of songwriters and publishers, who want better rate-setting standards to ensure parity with more lucrative sound-recording license rates. To say the rates are unfair would be an understatement, what with a 9:1 rate disparity between sound recording mechanical licenses and musical work mechanical licenses. The good news for songwriters and publishers is that this favorite demand of theirs now has the Copyright Office's backing, much to the ire of online music services.

Online music services are happy with current musical work rates and rate-setting standards. The Office is not, it wants the "multifactor rate-setting standards" to be replaced by something simpler and more market oriented. It sees a likely replacement in the "willing buyer/willing seller" standard currently being used to set sound-recording rates (public performance rights) for non-interactive Internet streaming services like Pandora (Pandora is considered non interactive because you can't choose which songs to listen to, unlike paid accounts with Spotify, Google Play, and other interactive services). The online music services feel current sound-recording rates are hugely inflated and the willing buyer/willing seller standard is the reason why.

In what ought to please even online music services, the Office has recommended the creation of music rights organizations ("MROs") and the general music-rights organization ("GMRO") to administer both mechanical and public performance rights in a blanket fashion, and distribute royalties among copyright owners in a fair, transparent manner. But then again the proposed framework gives copyright owners the right to selectively withdraw their works from collective licensing, which is something DiMA vehemently opposed in its replies to the Office's Notice of Inquiries.

Some of the other key proposals include the federalization of pre-1972 sound recordings--these currently don't require a license under the federal Copyright Act--and making terrestrial analog radio stations liable for sound-recording royalties.


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