The big news in the music world this week is that Apple finally is able to sell digital downloads of the Beatles catalog in its iTunes music store. For years, the copyright holders who control the Beatles master recordings have withheld permission to use the Beatles recordings on iTunes and other digital download and on-demand streaming services, seemingly afraid of diluting the value of their copyrights. There are other bands who have had a similar reluctance to make their recordings available on-line. While this impasse has now been broken by the biggest name among these digital holdouts, at least as to iTunes, some have asked why it is that the Beatles were never missing from Internet radio, while they were absent from these other services. The answer is the statutory license under which Internet Radio operates.
While there have been many disputes over the royalties that have been imposed under the statutory license created by Congress which allow non-interactive digital music companies to use sound recordings to provide music to their customers, there is no question that the license has fulfilled one of its primary functions – making sure that there is access by Internet radio operators to the entire catalog of sound recordings available in the United States. One of the principal reasons that the statutory license was created was the inherent difficulty, if not the impossibility, for a radio-like digital service operating under the sound recoding performance royalty first adopted in 1995 to secure permission from all of the copyright holders of all of the music that such services might want to use. Thus, Congress adopted the statutory license which requires the copyright holder to make available its sound recordings to non-interactive services, in exchange for the service agreeing to pay a statutory royalty – the royalty now set by the Copyright Royalty Board. But only non-interactive services, where listeners cannot select the songs that they hear, are covered by that statutory royalty (see our summary here of one of the cases dealing with the question of what is and what is not a non-interactive service).
Interactive services, where the listeners have the ability to set up playlists or otherwise direct which songs will be heard, or a download service, where the pick specific songs to add to their music library, are not covered by the statutory royalty. That means that the operator of a service that wants to provide listeners the ability to direct the songs that can be played, must first secure the permission of the copyright holders (usually, for major label releases, the record companies). And the copyright holders are free to refuse to provide permission for the use of some of their catalog for some or all interactive purposes – such limitations sometimes set out in the record company’s agreements with some of their artists. Not only can the record company withhold permission for the use of certain sound recordings, but the company can also charge different amounts for different songs – effectively letting a "must have" band like the Beatles withhold their music until their terms are met.
These are only some of the issues that come up in setting up a digital music service. The line between an interactive service and a non-interactive service is not a clear one, as shown by the arguments in the case we summarized last year. In addition, non-interactive services must meet the performance complement (or get a waiver, as broadcasters have done for simulcast streaming) or, to some extent, they don’t qualify for the statutory royalty. And we’re dealing here only with the sound recording copyrights – and there are a whole different set of rules for the copyright in the musical composition. Obviously – it’s not easy to operate a digital music service – much less a profitable one. For more information about some of these issues, see our guide to the Basics of Music Licensing in Digital Media, here.