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The Digital Royalty Fight

By:David Lowery & Daniel Gervais | Published:9/4/2013

The following blog is reprinted with permission from author David Lowery and The Trichordist blog.  Italicized comments in blue represent comments made from a Canadian perspective by Daniel Gervais, professor of International Copyright Laws and Treaties at Vanderbilt university, and a world renowned expert.

Thom Yorke and Nigel Godrich blew up the Internet last week when they abruptly pulled some of their catalogue from Spotify.  I’ve been getting many inquiries as to how they managed to do this, when other artists and songwriters can’t.  Short answer: they were able to do this because they controlled all or most of the rights to their recordings.  They actually pulled their recordings but not their songs.   Confused?  Let’s dive in.

#1.  I covered this in part 1 but let’s reiterate.  The copyrights for songs and recordings are two separate copyrights.  Sometimes they are owned by the same individuals or companies.  But most of the time they are not.  However the songwriting copyright is contained within every recording of the song.   For this reason any service using a recording needs TWO licenses.  One from the songwriter and another from the owner of the recording.  This is also why as explained in part 1 there are two kinds of royalties.  Songwriter royalties and Performer royalties.

In Canada, there are three distinct rights: one in the musical work (first owner of this right is the songwriter/composer but for most forms of music it is generally shared between the songwriter and the publisher); on in the performance (initial owner if the performer/artist); and one in the recording (initially owner by the producer (“maker”) of the recording, generally the label).  Each right can be divided into parts. There can be multiple writers for a song, but beyond that each owner of all or part of a song, performance or recording can license or transfer rights by form of exploitation (use), territory etc.  The songwriter’s rights in the musical work can thus be split: the public performance and communication right can be transferred to SOCAN, while the publisher may own the reproduction (“mechanicals”) right.  Some mechanicals rights are exercised via collectives such as CMRRA/CSI. Performers and sound recording producers work via Re:Sound for some forms of exploitation and keep others.  

#2.  Copyrights for songs and copyrights for recordings are treated differently under the law.   Different rules, rates and uses are mandated (or not mandated) by the government for songs and recordings.  (Again why in 2013 the government is involved in setting prices for different uses of songs and recordings makes no sense to me either.)

This is true in the US. There are three “PROs” in the US (ASCAP, BMI and SESCA). The first two are regulated under antirust (competition) law and subject to “consent decrees” that give jurisdiction to a federal judge in New York to adjudicate rate disagreements. The collective established to administer the right in certain digital transmissions of sound recordings (SoundExchange) is regulated by the Copyright Royalty Boards and to a certain extent by the US Copyright Office.  Congress has also intervened to vary rates set by the US Board. 

In Canada, the Copyright Board oversees collectives. While not all collectives are under the exact same legal regime (mechanicals and public performance are treated differently), the Copyright Board of Canada has unified hearings on certain uses, basically determining the total value of the use and then splitting the payment between the various collectives involved.

#3 Different rules and rates are mandated (or not mandated) for different kinds of digital services. Webcasting has different rules and rates than streaming.

That is the big problem in the US.  Labels have retained exclusive rights in licensing on-demand streaming services such as Spotify. By contrast, streaming services can use musical works (compositions) knowing that they can do so by paying the rate set (ultimately) by federal Courts in New York.  In other works, it is very difficult for songwriters to say no to a streaming service (which will be licensed by PROs), while the label held a sword over any new service’s head because any of the labels has (functionally) a veto over any new service. That is why the label’s share of total music revenues has increased dramatically in the US.  

For download services (such as iTunes, the service must pay the US mechanical for each download (9.1 cents), usually half of which goes to the writer and half to the publisher. Of course most publishers are now functionally indistinguishable from labels. The label also get the producer’s share (reportedly around 60 cents) from which it is supposed to pay performers per contract.   Leaving aside the performer’s share, the labels gets 65 cents per download, and the writer 4.5 cents. That number ($0.045) may seem low but it is much better (percentage wise) than with on-demand streaming services such as Spotify.

#4 Webcasting and Streaming are two totally different kinds of digital services.  Pandora is webcasting.  Among other things you can’t play a song on demand. Spotify is Streaming. You can play a song on demand.   Spotify is like virtually owning a song and is purely “consumption” not promotion.  Pandora allows you to play a particular artist on demand but not the exact song.   Pandora is a combination of promotion and consumption (See part 1 #4 and #5 for explanation.)

For many non-interactive services, a compulsory license of the rights in the sound recording exists under US law.  Those services pay SoundExchange the prescribed rate(s).    This reduces the tension between the songwriters and the performers/producers. Also SoundExchange must by law remit to performers 45% of total payables. In cases where labels have exclusive rights, they get paid and then account to performers (hopefully) per the contract, with usual recoupments etc.

#5. A compulsory license is a use that is essentially mandated by the government. It is a use for which a songwriter or performer cannot “opt out”.   It also generally mandates a price that the songwriter and performer must sell the right to use that song or recording. However companies and individuals may privately negotiate that rate lower.

It is true that in the US the compulsory license is inequitable in that it applies to only certain online services. The distinction is between streaming and downloading. All services should be treated equally. That said, the songwriters are forced to say yes via the PROs.  Removing the compulsory license would seem to increase each label’s functional veto power (by extending the veto from both download (iTunes) and on-demand streaming services (Spotify) to non-interactive streaming (Pandora) services).

#6.  A consent decree is similar to a compulsory license but it’s even weirder.  It essentially allows a service to use a song while negotiating prices and use of song. Again it’s virtually impossible for an individual songwriter to “opt out”.   The consent decree only covers songs not recordings.

Discussed above.

Still with me?  Cause here comes the interesting part.

#7  A streaming services like Spotify uses a compulsory license and the consent decree to allow it access to songs.  But there is no compulsory license for the recordings.  Therefore Spotify had to go around and cut private deals with all the major record labels and a large alliance of independent labels.   Independent artists often get their recordings on Spotify through services called aggregators.  These aggregators also cut deals with Spotify.  So for recordings these are all private agreements.  No one is compelled by the government to let the Spotify play their recordings.

Agreed.

#8  Since Yorke and Godrich likely control all or most of their rights to their solo recordings they could pull their recordings from Spotify.  Remember there is no compulsory license for recordings when it comes to Streaming services.  Yorke and Godrich are not mandated to let Spotify use their recordings.

#9.  But Radiohead is still on Spotify?   Yes. Yorke and Godrich are unlikely to control these recordings.  These recordings are likely controlled by their record label or perhaps Yorke simply decided to leave his “back catalogue” on Spotify.

#10. On the other hand Spotify has a government mandated compulsory license to use any songs. (Also the Consent Decree comes into play, but it’s too complicated to explain here).  No songwriter can prevent the use of their songs on a commercial service like Spotify as long as they pay the government mandated royalty.   This is true for any streaming service. So strangely Someone could record covers of Yorke and Godrich’s songs and put them back on Spotify.

11.  Pandora and webcasters are in an even stronger position.  They enjoy government mandated access and rates for both the song copyrights and the recording copyrights.    Technically there is a consent decree for the songs and then a compulsory license for the recordings. Neither songwriters nor performers can “opt out” of webcasting no matter how terrible the rates.  Hence Yorke and Goodrich are still on Pandora.

12.  I sort of lied about #11.   You can opt out but it’s a sort of  “Nuclear Option”. I don’t quite understand how this works yet but it goes something like this:  If you as a songwriter also happen to be what is known as a publisher. AND you are represented by the Non-profit-member-owned American Society of Composers Authors and Publishers apparently you can withdraw your digital rights from ASCAP and cut or rather choose NOT to cut a direct deal with Pandora and other webcasters.  It appears the band Tool somehow managed to do this.  The downside is, if you want to be on some digital services but not others, you have to go around and individually negotiate deals and collect monies. Essentially you throw away your right to be part of any collective-like bargaining.  Also good luck getting paid.  Not a very good position to be in.   It’s still unclear to me if you can do this if you are a member of BMI instead of ASCAP.

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Now allow me to editorialize for a moment.   The United States Congress has started a periodic review of the copyright laws.  IMHO I think that congress should consider doing less,  when it amends the copyright act. In particular it should rethink the compulsory licenses for webcasting and streaming. In particular it should get rid of them.   There may have once been a rationale for compulsory licenses and rates  when these industries were in their infancy. But now these compulsory licenses have essentially become subsidies to some of the richest companies on earth (Google and Apple are now in the streaming game!)

I agree with the “rethink” but as discussed above, removing the Compulsory Licenses for recordings arguably puts writers in a worse position.

The debate is different in Canada. If a collective has the right to license a use, the Copyright Board can license the entire use and split the funds among collectives.  Labels may try to retain the right to license certain on-demand services and retain ”veto” power. However even then the Board may set the value of the writer’s (SOCAN) share taking account of the price paid (after a negotiation with the user).

These one price fits all compulsory licenses commoditize music and limit the kind of monetization models available to musicians. They limit innovation on the artists side.  They are anti-market and prevent the market from discovering the true prices of songs and recordings.

Further I believe these licenses limit innovation on the tech side by specifying the exact model for streaming and webcasting businesses.  Finally they are just plain unnecessary.  Terrestrial radio does not have the luxury of a compulsory license for songs yet BMI/ASCAP/SESAC and the broadcast industry seem to manage to come to agreement on prices and uses without government interference.   Webcasters and Streaming services should be expected to do the same.

Arguably songwriters might be better protected if new services could experiment and pay a set rate, with a clear obligation to split revenue among writers, publishers, artists and labels. This is more achievable in Canada (via the Board) then in the US, because the PROs are likely to remain under the yoke of antitrust (consent decree) control no matter what happens to the licensing of recordings.

David Lowery is a singer/songwriter and guitarist for the bands Camper Van Beethoven and Cracker. His is an avid blogger on creator’s rights.