The press has been full of reports over the last few weeks about Pandora and Amazon negotiating deals with record labels over music royalties, and some observers have expressed confusion – why don’t these services just rely on the rates set by the Copyright Royalty Board at the end of last year? The answer, as we have written many times before (see e.g. our articles here and here) is that the CRB rates apply only to noninteractive webcasters (companies that provide radio-like services where the listener cannot designate what song he or she will hear next). The services that rely on the CRB rates (which we summarized here and here) must abide by specific rules, including something called the “performance complement” which limits how frequently the service can play a particular artist or a particular song. Even the number of times that a listener can skip a song has been set by caselaw and industry practice (see our article here) – the fear being that if you allow unlimited skips the service becomes more like an interactive one.
So a service that wants to provide listeners with the ability to set up their own playlists or to choose to play songs on demand cannot rely on the license available through the CRB decision (the so-called “statutory license” – so named as the license and the CRB rate-setting process were created by a statute passed by Congress). Similarly, services relying on the statutory license cannot cooperate to allow copying of the songs that they play – so even setting up a service to allow the temporary caching of an Internet radio service so that listeners can hear it when they are offline, most likely cannot be done by simply paying the CRB-established rates. So what do music services that want to provide more functionality do?
Such services need to negotiate directly with the copyright holders of the sound recordings – usually the record labels – to get the rights to use these recordings in connection with their services. And, since the record labels are not compelled to grant a license, interactive music services may not be able to provide access to all the music in the world. That is why we see music exclusives that have become controversial in the music industry in recent months, where an artist may release his or her recording to only a single interactive service for some period of time, usually in exchange for some sort of financial consideration from the service. It is also why we see some services miss their launch deadlines as they cannot get deals done with a sufficient number of record labels to allow them to begin providing service.
In the non-interactive, Internet radio world, there are no exclusives, as the statutory license gives the service the right to play any legally-released sound recording. But the listener can’t necessarily hear what they want as the performance complement limits services from playing more than 3 songs in a row by the same artist, 2 songs in a row from the same CD, or 4 songs from the same artist in a 4 hour period. So listeners cannot stream an entire album, or make a playlist of one artist’s music or otherwise directly pick what they want to hear.
Any interactive service also has to clear the songwriting rights, not only by paying ASCAP, BMI and SESAC, but also by paying the royalties for the reproduction of the underlying musical compositions. That is a royalty set by the CRB, separate and apart from the license for the public performance of the sound recording. As we wrote here, the CRB is currently reviewing the “mechanical” royalties for the musical compositions to be paid by interactive services under Section 115 of the Copyright Act.
These questions are just one more example of why music rights seem, to those that don’t follow them on a routine basis (and, to a great extent, even to those that do) to be a very complicated system where there are not necessarily clear and easy answers to any question. And, as new players come into the music licensing landscape, the issues seem to only become more complex (see our article here about some of the issues surrounding the music marketplace). I’ll be providing a summary of some of these issues at the RAIN Summit Nashville next Tuesday, and also at the International Bluegrass Music Association business conference in Raleigh the following week. If you are attending either of these conferences, say hello and we can discuss these many issues currently facing digital music services and the creative community.