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Copyright and the Music Marketplace

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Copyright and the Music Marketplace

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Preface

Fewwoulddisputethatmusicisculturallyessentialandeconomicallyimportanttothe

worldwelivein,buttherealityisthatbothmusiccreatorsandtheinnovatorsthat

supportthemareincreasinglydoingbusinessinlegalquicksand. Asthisreportmakes

clear,thisstateofaffairsneitherfurthersthecopyrightlawnorbefitsanationascreative

astheUnitedStates.

TheCopyrightOfficehaspreviouslyhighlightedtheoutmodedrulesforthelicensingof

musicalworksandsoundrecordingsasanareainsignificantneedofreform.1

Moreover,theOfficehasunderscoredtheneedforacomprehensiveapproachto

copyrightreviewandrevisiongenerally.2 Thisisespeciallytrueinthecaseofmusic

licensing—theproblemsinthemusicmarketplaceneedtobeevaluatedasawhole,

ratherthanasisolatedorindividualconcernsofparticularstakeholders.

WhilethisviewishardlyasurprisingonefortheU.S.CopyrightOffice,itisnosimple

mattertogetone’sarmsaroundourcomplexsystemofmusiclicensing,ortoformulate

potentialavenuesforchange. Forthisreason,inearly2014,theOfficeundertookthis

study—withallindustryparticipantsinvitedtoparticipate—tobroadlyconsiderthe

existingmusicmarketplace.3

Thisreportistheresultofthateffort. Inadditiontoidentifyingtheshortcomingsofthe

currentmethodsoflicensingmusicintheUnitedStates,itoffersanin‐depthanalysisof

thelawandindustrypractices,aswellasaseriesofbalancedrecommendationsto

improvethemusicmarketplace.

Acknowledgments

ThisreportwaspreparedbytheOfficeoftheGeneralCounsel,U.S.CopyrightOffice,

followinganexhaustiveanalysisofindustrypracticesandconsiderabledialoguewith

musiccreatorsandthebusinessesthatrepresentandinvestintheirinterests,aswellas

musicservicesanddistributorsandotherinterestedparties. Iamindebtedtothestaff

whoworkedsotirelesslyandthoughtfullytoseethereporttofruitionandamconfident

thatitwillbeamajorresourceforbothCongressandthepublic.

1 SeeMariaA.Pallante,TheNextGreatCopyrightAct,36COLUM.J.L.&ARTS315,33435(2013)

(“Tomakealongstoryshort,Congresscouldmakearealdifferenceregardinggridlockinthe

musicmarketplace.”).

2 SeeTheRegister’sCallforUpdatestoU.S.CopyrightLaw:HearingBeforetheSubcomm.onCourts,

Intell.Prop.andtheInternetoftheH.Comm.ontheJudiciary,113thCong.6(2013)(statementof MariaA.Pallante,RegisterofCopyrights).

3 See17U.S.C.§701(b)(4)(notingthattheRegisterofCopyrightsshallconductstudiesregarding

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IdoubtthereportwouldhavebeenpossiblewithoutJacquelineC.Charlesworth,

GeneralCounselandAssociateRegister,whooversawthecomplexresearch,public

hearings,writing,andrecommendations. Itisdifficulttosaywithcertaintywhetheritis

Jacqueline’soutstandingskillsetasalawyerorherextensivebackgroundinthemusic

industrythatprovedmostvaluableforthisproject,buteitherwayshehasproduceda

reportthatisfair,rational,andforward‐thinking,afittingframeworkforafieldas

culturallybelovedandeconomicallyimportantasmusicistotheUnitedStates.

IamsimilarlyindebtedtoSarang(Sy)Damle,DeputyGeneralCounsel,whoprovided

additionalleadershipandnumerouscriticalcontributions,includingdeftdrafting,

dispassionateanalysis,anddeepregardfortheintersectionofmusicandtechnology.

IamverygratefulaswellforthecontributionsofReganSmith,AssistantGeneral

Counsel,whooversawtheeditingprocessandthefinalproductionofthereport.

AssistantGeneralCounselSteveRuwehelpedwiththehearingsandprovided

substantialresearchandanalysis,especiallyintheareaofstatutorylicensing. Likewise,

Attorney‐AdvisorsRickMarshallandJohnRileyassistedwithhearings,researchand

writing;Johnalsopreparedthehelpfulandimpressivechartsonthelicensingand

ratesettingprocessesthatareincludedinthereport. IalsowishtorecognizeMichelle

Choe,whoiswiththeCopyrightOfficeasaBarbaraA.RingerHonorsProgramFellow,

forhersubstantialresearchandwritingefforts. DonaldStevens,alsoaRingerFellow,

assistedwithparticularquestionsofinternationallaw,andLawClerksAndrewMoore,

KylePetersen,MarynaKoberidze,andMeganHartnettprovidedvaluableresearch

support,forwhichIamthankful.

Asalways,theCopyrightOfficereceivedsignificantandtimelysupportfromcolleagues

outsideofWashington,D.C. IsoappreciateProfessorRushHicksandLukeGilfeather

oftheMikeCurbCollegeofEntertainmentandMusicBusinessatBelmontUniversity

forfacilitatingtheroundtableheldinhistoricColumbiaStudioAonMusicRowin

Nashville. Mythanksandappreciation,aswell,toProfessorsDavidNimmerandNeil

NetaneloftheUCLASchoolofLawforhelpingtofacilitatetheLosAngelesroundtable,

andProfessorBartonBeebeofNYULawSchoolforhisassistancewiththeNewYork

Cityroundtable. IwouldparticularlyliketoacknowledgeRepresentativeJerrold

Nadler,whovisitedtheNewYorkroundtabletosharehisviewsabouttheimportance

oftheseissues.

Lastbutnotleast,Iamindebtedtothemanyorganizationsandindividualswho

providedwrittencommentaryandsharedtheirfrustrations,insights,andexperiencesin

theroundtablediscussions. Ihopethisreporthelps.

MariaA.Pallante

RegisterofCopyrightsandDirector

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TABLEOFCONTENTS

EXECUTIVESUMMARY...1

I. INTRODUCTION ...12

A. StudyHistory...14

B. LicensingandRatesettingCharts...15

II. MUSICLICENSINGLANDSCAPE ...16

A. CopyrightOverview...16

1. BriefHistoryofCopyrightProtectionforMusic...16

2. MusicalWorksVersusSoundRecordings...18

3. KeyPlayersintheMusicMarketplace...18

a. Songwriters...18

b. MusicPublishers...19

c. PerformingRightsOrganizations(“PROs”)...20

d. MechanicalRightsAdministrators...21

e. RecordingArtistsandProducers...21

f. RecordCompanies...22

g. MusicProviders...23

h. Consumers...24

B. LicensingMusicalWorks...25

1. ExclusiveRightsinMusicalWorks...25

2. ReproductionandDistributionRights...26

a. HistoricalBackground ...26

b. MechanicalRightsLicensing...28

StatutoryLicensing...28

VoluntaryLicenses...30

RecentReformEfforts ...31

3. PublicPerformanceRights...32

a. ThePROs...32

b. AntitrustOversight...34

DepartmentofJusticeConsentDecrees...35

KeyAntitrustCases...38

c. ConsentDecreeProcedures...40

4. StatutoryLicenseforPublicandNoncommercialBroadcasting...42

C. LicensingSoundRecordings...43

1. ExclusiveRightsinSoundRecordings...43

2. ReproductionandDistributionRights...43

3. PublicPerformanceRights...43

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b. Section112and114Licenses...46

Interactive/NoninteractiveDistinction ...48

RatesettingStandards...49

CRBRatesettingProceedings...50

RoyaltyRates...51

c. PrivatelyNegotiatedLicenses...52

4. Pre‐1972SoundRecordings...53

D. SynchronizationRights...55

E. LicensingEfficiencyandTransparency...58

1. DataStandards...59

2. PublicData...62

3. Non‐GovernmentDatabases...63

4. InternationalEfforts...65

5. DataSharingInitiatives ...66

III. CHALLENGESOFTHECURRENTSYSTEM...68

A. CompensationandLicensingDisparities...69

1. EffectofMarketTrendsonCreatorIncome...69

a. FromPhysicalFormatstoDownloadstoStreaming...70

b. ImpactofMusicStreamingModels ...73

c. Non‐PerformingSongwriters...78

d. AdditionalConsiderations...78

Piracy...78

ImpactofDMCASafeHarbors...79

2. DisparateTreatmentofAnalogousRightsandUses...81

a. InconsistentRatesettingStandards...81

b. DifferentRatesettingBodies...83

c. Pre‐1972SoundRecordings...85

FullFederalizationConsiderations...85

PartialFederalizationAlternative...86

d. TerrestrialRadioExemption...87

B. Government’sRoleinMusicLicensing...90

1. PROConsentDecrees ...90

a. RoyaltyRates...91

b. RateCourtProceedings...93

c. InterimFees ...94

d. InconsistentRegulationofPROs...95

e. Parties’Proposals...96

CompleteorPartialWithdrawalofRights...97

EliminationVersusExpansionofConsentDecrees...101

RateCourtChanges...102

BundledLicensing...103

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2. MechanicalRightsLicensing...105

a. RoyaltyRatesandStandard...105

b. AdministrativeBurdens...107

c. PerceivedUnfairness...108

LackofAuditRights...108

AdministrativeIssues...110

d. Parties’Proposals...111

EliminationofStatutoryLicense...111

BlanketLicensing...112

3. Sections112and114...114

a. RoyaltyRates...114

b. Interactive/NoninteractiveDivide...115

c. TechnicalLimitationsofSection112...117

d. LackofTerminationProvision...117

e. RoyaltyDistributionProcess...118

4. PublicandNoncommercialBroadcasting...118

5. ConcernsRegardingCRBProcedures...119

a. InefficienciesandExpense...119

b. SettlementObstacles...121

c. DiscoveryProcess...121

C. LicensingEfficiencyandTransparency...123

1. MusicData...123

a. LackofReliablePublicData...123

b. Parties’Views...126

2. UsageandPaymentTransparency...128

a. AdvancesandEquityDeals...128

b. PRODistributions...130

c. “Pass‐Through”Licensing...131

IV. ANALYSISANDRECOMMENDATIONS...133

A. GuidingPrinciples...134

B. LicensingParityandFairCompensation...134

1. EquitableTreatmentofRightsandUses...135

a. MusicalWorksVersusSoundRecordings ...135

b. TerrestrialRadio...138

c. Pre‐1972SoundRecordings...140

2. ConsistentRatesettingStandards...142

C. RoleofGovernmentinMusicLicensing...145

1. AntitrustConsiderations...146

2. ThePROsandtheConsentDecrees...150

a. Pandora Analysis...151

PublisherWithdrawals...151

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AvailabilityofSongData...155

b. PRORatesettingProcess...155

MigratetoCopyrightRoyaltyBoard ...155

Section114(i)...157

InterimFees ...157

c. PartialWithdrawalofRights...158

d. BundledLicensing...160

3. MechanicalLicensingandSection115...162

a. FreeMarketNegotiationVersusCollectiveAdministration...162

PublisherOpt‐OutRight...164

FullMarketCoverage...165

CoverRecordings...166

AudiovisualUses...167

b. ShifttoBlanketLicensing...169

c. Ratesetting ...170

“As‐Needed”Ratesetting...171

UseofBenchmarks...172

InterimRates...173

d. AuditRight...173

e. SunsetofExistingSection115Licenses...174

4. Section112and114Licenses...175

a. ScopeofLicenses...176

AdjusttoIncludeTerrestrial...176

QualifyingVersusNonqualifyingServices...177

b. Ratesetting ...179

c. ProducerPayments...180

d. TerminationProvision...181

5. PublicandNoncommercialBroadcasting...181

D. LicensingEfficiencyandTransparency...183

1. IndustryData ...183

a. PubliclyAccessibleDatabase...183

b. AdoptionofDataStandards...184

2. FairReportingandPayment...186

a. WriterandArtistShares ...186

b. BestPracticesforTransparency...189

E. AnUpdatedMusicLicensingSystem...189

1. MROs...190

2. TheGMRO...192

a. Data‐RelatedResponsibilities ...193

b. DefaultLicensingandPayment...194

c. ResourcesandFunding...196

3. TheCRB ...197

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b. All‐InRatesforNoninteractiveStreaming...198

c. GMROSurcharge...199

d. ProceduralImprovements...199

4. RegulatoryImplementation...201

5. FurtherEvaluation...202 APPENDICES

AppendixA: FederalRegisterNotices

AppendixB: CommentingPartiesandRoundtableParticipants

AppendixC: Abbreviations

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Executive

Summary

TheUnitedStateshasthemostinnovativeandinfluentialmusiccultureintheworld,

butmuchofthelegalframeworkforlicensingofmusicdatesbacktotheearlypartofthe

twentiethcentury,longbeforethedigitalrevolutioninmusic. Ourlicensingsystemis

foundedonaviewthatthemusicmarketplacerequiresauniquelevelofgovernment

regulation,muchofitreflectedinstatutorylicensingprovisionsoftheCopyrightAct.

TheCopyrightOfficebelievesthatthetimeisripetoquestiontheexistingparadigmfor

thelicensingofmusicalworksandsoundrecordingsandconsidermeaningfulchange.

Thereisawidespreadperceptionthatourlicensingsystemisbroken. Songwritersand

recordingartistsareconcernedthattheycannotmakealivingundertheexisting

structure,whichraisesseriousandsystemicconcernsforthefuture. Musicpublishers

andperformancerightsorganizationsarefrustratedthatsomuchoftheirlicensing

activityissubjecttogovernmentcontrol,sotheyareconstrainedinthemarketplace.

Recordlabelsanddigitalservicescomplainthatthelicensingprocessisburdensomeand

inefficient,makingitdifficulttoinnovate.

Whilethereisgeneralconsensusthatthesystemneedsattention,thereislessagreement

astowhatshouldbedone. Inthisreport,afterreviewingtheexistingframeworkand

stakeholders’views,theCopyrightOfficeoffersaseriesofguidingprinciplesand

preliminaryrecommendationsforchange. TheOffice’sproposalsaremeanttobe

contemplatedtogether,ratherthanindividually. Withthisapproach,theOfficeseeksto

presentaseriesofbalancedtradeoffsamongtheinterestedpartiestocreateafairer,

moreefficient,andmorerationalsystemforall.

A. GuidingPrinciples

TheCopyrightOffice’sstudyrevealedbroadconsensusamongstudyparticipantson

fourkeyprinciples:

 Musiccreatorsshouldbefairlycompensatedfortheircontributions.

 Thelicensingprocessshouldbemoreefficient.

 Marketparticipantsshouldhaveaccesstoauthoritativedatatoidentifyand

licensesoundrecordingsandmusicalworks.

 Usageandpaymentinformationshouldbetransparentandaccessibleto

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Inadditiontotheabove,basedontherecordintheproceeding,theOfficehasidentified

severaladditionalprinciplesthatitbelievesshouldalsoguideanyprocessofreform.

Theseare:

 Governmentlicensingprocessesshouldaspiretotreatlikeusesofmusicalike.

 Governmentsupervisionshouldenablevoluntarytransactionswhilestill

supportingcollectivesolutions.

 Ratesettingandenforcementofantitrustlawsshouldbeseparatelymanagedand

addressed.

 Asingle,market‐orientedratesettingstandardshouldapplytoallmusicuses

understatutorylicenses.

TheOfficewasguidedbyalloftheaboveprinciplesindevelopingitsrecommendations,

whicharesummarizedbelow.

B. LicensingParityandFairCompensation

Questionsoflicensingparityandfaircompensationarecloselytiedtotherelative

treatmentofmusicrightsandrightsholdersunderthelaw. TheCopyrightOffice

believesthatanyoverhaulofourmusiclicensingsystemshouldstrivetoachievegreater

consistencyinthewayitregulates(ordoesnotregulate)analogousplatformsanduses.

Withthatgoalinmind,theOfficerecommendsthefollowing:

 Regulatemusicalworksandsoundrecordingsinaconsistentmanner. The

Officebelievesthat,atleastinthedigitalrealm,soundrecordingsandthe

underlyingmusicalworksshouldstandonmoreequalfooting. TheCopyright

Office’sapproachwouldofferafreemarketalternativetomusicalworkowners,

intheformofanopt‐outrighttowithdrawspecificcategoriesofrightsfrom

governmentoversightinkeyareaswheresoundrecordingownersenjoysuch

benefits—namely,interactivestreamingusesanddownloads.

 Extendthepublicperformancerightinsoundrecordingstoterrestrialradio

broadcasts. AstheCopyrightOfficehasstatedrepeatedlyformanyyears,the

UnitedStatesshouldadoptaterrestrialperformancerightforsoundrecordings.

Apartfrombeinginequitabletorightsholders—includingbycurtailingthe

reciprocalflowofroyaltiesintotheUnitedStates—theexemptionofterrestrial

radiofromroyaltyobligationsharmscompetingsatelliteandinternetradio

providerswhomustpayfortheuseofsoundrecordings. AssumingCongress

adoptsaterrestrialperformanceright,itwouldseemonlylogicalthatterrestrial

usesshouldbeincludedunderthesection112and114licensesthatgovern

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 Fullyfederalizepre‐1972soundrecordings. Asitconcludedinits2011reporton

thetopic,theCopyrightOfficebelievesthatpre‐1972recordings—currently

protectedonlyunderstatelaw—shouldbebroughtwithinthescopeoffederal

copyrightlaw,withthesamerights,exceptions,andlimitationsasmorerecently

createdsoundrecordings. Thelackoffederalprotectionforpre‐1972sound

recordingsimpedesafairmarketplace. Recordlabelsandartistsarenotpaidfor

performancesoftheseworksbydigitalservices,which(atleastuntilrecentcourt

rulingsunderstatelaw)wereconsideredfreefromcopyrightliabilityonthe

soundrecordingside. Atthesametime,theownersofthemusicalworks

embodiedinthesesoundrecordingsarepaidforthesameuses.

 Adoptauniformmarket‐basedratesettingstandardforallgovernmentrates.

Whileinsomecasesthelawprovidesthattheratesettingauthorityshould

attempttoemulateafreemarket,inothercasesitimposesamorepolicy‐

orientedapproachthathasledtobelow‐marketrates. Thereisnopolicy

justificationforastandardthatrequiresmusiccreatorstosubsidizethosewho

seektoprofitfromtheirworks. Accordingly,theOfficecallsforadoptionofa

singleratestandard—whetherdenominated“willingbuyer/willingseller”or

“fairmarketvalue”—thatisdesignedtoachieveratesthatwouldbenegotiated

inanunconstrainedmarket.

C. Government’sRoleinMusicLicensing

Thegovernment’sinvolvementinthemusicmarketplaceisunusualandexpansive

relativetootherkindsofworkscreatedanddisseminatedundertheCopyrightAct. In

manycases,itcompelscopyrightownerstolicensetheirworksatgovernment‐setrates.

Regulationofmusicpublishersandsongwritersisparticularlypervasive:thetwomost

significantareasoftheirmarket(mechanicalandperformancelicensing)aresubjectto

mandatorylicensingandratesetting. Antitrustconcernshavebeenthetraditional

rationaleforgovernmentintervention. Tobesure,whereparticularactorsengagein

anticompetitiveconductinviolationofantitrustlaws,thatconductshouldbeaddressed.

Butcompulsorylicensingdoesmorethanthat—itremoveschoiceandcontrolfromall

copyrightownersthatseektoprotectandmaximizethevalueoftheirassets.

Regardlessofthehistoricaljustificationsforgovernmentintervention,theCopyright

Officebelievesthatintoday’sworld,certainaspectsofthecompulsorylicensing

processescanandshouldberelaxed. Thebelowrecommendationsoffersomeideasfor

howthatmightbeaccomplishedinthevariousareasofthemarketwherethereis

governmentinvolvement.

Performing Rights Organizations (“PROs”) and the Consent Decrees

ManyimportantissueshavebeenraisedintheDepartmentofJustice’s(“DOJ’s”)

parallelconsiderationoftheAmericanSocietyofComposers,AuthorsandPublishers

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review,and—inlightofthesignificantimpactofthedecreesintoday’sperformance‐

drivenmusicmarket—hopesitwillresultinaproductivereconsiderationofthe75‐year‐

olddecrees. Atthesametime,theCopyrightOfficeobservesthatitisCongress,notthe

DOJ,thathastheabilitytoaddressthefullrangeofissuesthatencumberourmusic

licensingsystem,whichgofarbeyondtheconsentdecrees. Intheareaofperformance

rights,theOfficeoffersthefollowingrecommendations:

 MigrateallratesettingtotheCopyrightRoyaltyBoard(“CRB”). TheCopyright

Officebelievesthatallegationsofanticompetitiveconductareworthyof

evaluation(and,ifappropriate,remedialaction)separateandapartfromthe

determinationoffairratesformusicalworks. Eachofthesetwocriticalpolicy

objectivesmeritsgovernmentattentioninitsownright. Accordingly,theOffice

proposesthatthefunctionofestablishingratesforthepublicperformanceof

musicalworks—currentlytheprovinceoffederaldistrictcourtsunderthe

consentdecrees—bemigratedtotheCRB. Industryratesettingis,ofcourse,a

primaryfunctionoftheCRB,andtheCRBhasthebenefitofexperienceassessing

abroaderspectrumofrate‐relatedquestionsthanthefederalratecourts,aswell

asspecificexpertiseincopyrightlawandeconomics.

 Repealsection114(i). RegardlessofwhetherPROratesettingismigratedtothe

CRB,asfurtherdiscussedbelow,theCopyrightOfficeendorsestheproposalthat

theprohibitioninsection114(i)thatcurrentlypreventsratesettingtribunalsfrom

consideringsoundrecordingperformanceroyaltiesbeeliminated. Originally

designedasaprotectivemeasuretobenefitsongwritersandpublishers,it

appearstobehavingtheoppositeeffect.

 Streamlineinterimratesettingandrequireimmediatepaymentofroyalties.

Undertheconsentdecrees,anyonewhoappliesforalicensehastherightto

performmusicalworksinaPRO’srepertoire—withoutpayingthePROany

compensation—pendingthecompletionofnegotiationsorratecourtproceedings

resultinginaninterimorfinalfee. Theproblemisexacerbatedbythesubstantial

burdenandexpenseoflitigatingevenaninterimrateinfederalcourt. The

CopyrightOfficebelievesthattotheextentalicensingentityisrequiredtogrant

alicenseuponrequest,thereshouldbeastreamlinedmechanismtosetan

interimroyaltyrate,andthatthelicenseeshouldhavetostartpaying

immediately.

 Permitopt‐outfromPROsforinteractivestreaming. TheOfficebelievesthat

musicpublishersshouldbeabletowithdrawspecificcategoriesoflicensing

rightsfromtheirauthorizationstothePROs. Atleastfornow,theOfficebelieves

thatwithdrawalofperformancerightsshouldbelimitedtodigitalrights

equivalenttothosethattherecordlabelsarefreetonegotiateoutsideofsections

112and114—essentially,interactivestreamingrightsfordigitalservices.

(14)

       

              

       

       

   

          

       

       

          

       

              

       

       

            

       

       

       

       

              

       

          

       

              

 

       

                

       

                

       

              

       

       

       

        

       

       

            

       

       

withdrawnworksandotherpertinentinformationtoacentralsource,suchasthe

generalmusicrightsorganization(“GMRO”)discussedbelow. Inaddition,the

Officebelievesthatsongwritersaffiliatedwiththatpublishershouldretainthe

optionofreceivingtheirwriter’sshareofroyaltiesdirectlythroughtheirchosen

licensingcollective.

 Allowbundledlicensingofmechanicalandperformancerights. Industry

participantssupportincreasedbundlingofrights—i.e.,reproduction,

distribution,andperformancerights—inunifiedlicensestofacilitategreater

licensingefficiency. Althoughbundlingofsoundrecordingrightsoccursasa

matterofcourse,variouslegalrestrictionshavepreventedthatsame

developmentonthemusicalworkside. TheOfficebelievesthatthegovernment

shouldpursueappropriatechangestothelegalframeworktoencouragebundled

licensing,whichcouldeliminateredundantresourcesonthepartofboth

licensorsandlicensees. ThiscouldincludeallowingthePROsandotherentities

tobecomemusicrightsorganizations(“MROs”),whichwouldbeauthorizedto

licensebothperformanceandmechanicalrights.

Mechanical Licensing and Section 115

Studyparticipantshighlightedtheseriousshortcomingsofthe106‐yearoldcompulsory

licensefor“mechanical”reproductionsofmusicalworks(e.g.,CDs,vinylrecordsand

downloads)insection115. Onthecopyrightownerside,partiescomplainedthatthe

mandatorynatureofthelicensedoesnotpermitthemtocontroltheirworksorseek

higherroyalties. Onthelicenseeside,partiescriticizedsection115’srequirementof

song‐by‐songlicensing,adauntingtaskinaworldwhereonlineprovidersseeklicenses

formillionsofworks. Inlightoftheseconcerns,theOfficeoffersthefollowing

recommendations:

 Permitcollectivelicensingofmechanicalrightsbutwithanopt‐outrightfor

interactivestreaminganddownloaduses. TheOfficeissympathetictomusic

publishers’argumentsforeliminationofthecompulsorylicenseinsection115in

favoroffreemarketnegotiations. Butinlightofthediffuseownershipof

musicalworks,itseemsclearthatsomesortofcollectivesystemwouldbe

necessaryeveninsection115’sabsence. TheOfficethusbelievesthat,ratherthan

eliminatingsection115altogether,section115shouldinsteadbecomethebasisof

amoreflexiblecollectivelicensingsystemthatwillpresumptivelycoverall

mechanicalusesexcepttotheextentindividualmusicpublisherschoosetoopt

out. Atleastinitially,themechanicalopt‐outrightwouldextendtointeractive

streamingrightsanddownloadingactivities—useswheresoundrecording

ownersoperateinthefreemarket(butnotphysicalgoods,whichhavesomewhat

distinctlicensingpractices). AsenvisionedbytheOffice,thecollectivesystem

wouldincludeMROs(asnoted,withtheabilitytorepresentbothperformance

(15)

       

                

       

              

       

       

       

          

       

                

       

 

              

       

       

       

       

              

       

       

                

              

       

        

       

     

              

       

       

       

        

       

            

       

       

       

       

       

representedbyanMROorcoveredbyadirectdeal),andindividualpublishers

thatchoosetooptout. Licenseescouldthusachieveend‐to‐endcoverage

throughthecombinationofMROs,theGMRO,anddirectlicensors.

 Establishblanketlicensingfordigitalusesundersection115. Tofurtherfacilitate

therightsclearanceprocessandeliminateuserconcernsaboutliabilityto

unknownrightsowners,theOfficebelievesthatmechanicallicensing,like

performancelicensing,shouldbeofferedonablanketbasisbythosethat

administerit. Thiswouldmeanthatalicenseewouldneedonlytofileasingle

noticewithanMROtoobtainarepertoire‐wideperformanceandmechanical

licensefromthatlicensingentity. Themovetoablanketsystemwouldallow

marketplaceentrantstolaunchtheirservices—andbeginpayingroyalties—more

quickly.

 CRBratesettingonan“as‐needed”basis. TheOfficebelievesthattheCRB

shouldcontinuetosetratesunderthesection115license,thoughwithan

importantmodification:asisnowthecasewithperformancerights,ratherthan

establishratesacrosstheboardeveryfiveyears,theCRBwouldsetratesfor

particularusesonlyonanas‐neededbasiswhenanMROandlicenseewere

unsuccessfulinreachingagreement. Otherinterestedparties(suchasother

MROsandotherusers)couldchoosetojointherelevantproceeding,inwhich

casethosepartieswouldbeboundbytheCRB‐determinedrate.

 Ensurecopyrightownerspossessauditrights. Publishershavelongcomplained

aboutthelackofanauditrightundersection115. Inthatregard,section115is

anoutlier—suchauditrightshavebeenrecognizedunderotherstatutory

licenses. TheOfficebelievesthatthemechanicallicensingsystemshouldbe

amendedtoprovideforanexpressauditright,withtheparticularlogisticstobe

implementedthroughregulation.

 Maintainaudiovisualusesinthefreemarket. Recordcompaniesproposed

extendingcompulsoryblanketlicensingtocertainconsumeraudiovisual

products—suchasmusicvideos,albumcovervideos,andlyricvideos—usesthat

havetraditionallyrequiredasynchronizationlicensenegotiatedinthefree

market. TheOfficeissympathetictothelabels’concerns,butcannotatthistime

recommendthatconsumersynchusesbeincorporatedintoagovernment‐

supervisedlicensingregime. TheOfficedoesnotperceiveamarketfailurethat

justifiescreationofanewcompulsorylicense,andthemarketappearstobe

respondingtolicensingneedsforconsumeraudiovisualproducts.

Section 112 and 114 Licenses

Oneofthefewthingsthatseemstobeworkingreasonablywellinourlicensingsystem

isthestatutorylicenseregimeundersections112and114,whichpermitsqualifying

(16)

            

       

       

          

       

     

            

       

                

       

                

       

       

       

          

       

       

       

          

              

       

       

       

        

            

       

         

        

       

       

        

       

            

       

        

       

         

              

       

                

otherwiseagreed)rate. Althoughthedifferingratesettingstandardsfortheselicenses—

aswellassomeoftheratesestablishedunderthosestandards—havebeenasourceof

controversy,fromtherecordinthisstudy,thelicensingframeworkitselfisgenerally

wellregarded. Notwithstandingthecomparativelypositivereviewsofthesection112

and114licenses,thereareafewrelativelyminorimprovementsthattheOfficebelieves

shouldbeconsidered:

 Considerratesettingdistinctionbetweencustomandnoncustomradio. In2009,

theSecondCircuitruledthatpersonalizedradioservicesareeligibleforthe

section112and114licenses. AlthoughtheOfficehassomereservationsabout

thatinterpretation,thereappearstobenooverwhelmingcalltoremovecustom

radiofromthestatutoryregime. Nonetheless,withinthatregime,itmaybe

appropriatetodistinguishbetweencustomandnoncustomradio,asthe

substitutionaleffectofpersonalizedradioonpotentiallycompetinginteractive

streamingservicesmaybegreaterthanthatofservicesofferingacompletely

noncustomizedexperience. Whiletheissuecouldbeaddressedlegislatively,this

doesnotappeartobenecessary,astheCRBhasthediscretiontosetdifferentrate

tierstodaywhentherecordsupportssuchanoutcome.

 Allowfine‐tuningoftechnicalaspectsofthelicensethroughtheexerciseof

regulatoryauthority. Internetserviceshavecriticizedanumberofthedetailed

limitationsthatsection114imposesoncompulsorylicensees. Theseincludethe

so‐called“soundrecordingperformancecomplement,”arestrictionthatlimits

thefrequencywithwhichsongsfromthesamealbumorbythesameartistmay

beplayedbytheservice,aswellasaprohibitionagainstannouncingupcoming

selections. Butforthefactthattheyappearinthestatuteitself,suchdetails

wouldseemtobemoreappropriatelytheprovinceofregulation. Assuggested

moregenerallybelow,Congressmaywishtocommitnuancesliketheseto

administrativeoversightbytheCopyrightOffice.

 ConsiderpermittingSoundExchangetoprocessrecordproducerpayments.

Recordproducers—whomakevaluablecreativecontributionstosound

recordings—arenotamongthepartiesentitledbystatutetodirectpaymentby

SoundExchange. Insomecases,anartistmayprovidealetterofdirection

requestingSoundExchangetopaytheproducer’sshareofincomefromtheartist

royaltiescollectedbySoundExchange,whichSoundExchangewillhonor. Ithas

beensuggestedthatthisinformalpracticeberecognizedthroughastatutory

amendment. Thoughitwouldbebeneficialtohearmorefromartistsonthis

issue,theOfficeagreesthatinmanyinstancesproducersareintegralcreators

andthattheproposalthereforemeritsconsideration.

 AllowSoundExchangetoterminatenoncompliantlicensees. Unlikesection115,

sections112and114donotincludearighttoterminatealicenseethatfailsto

(17)

       

       

         

          

       

       

        

       

       

       

 

         

       

          

       

              

              

       

       

                

       

        

       

       

       

       

        

       

                

       

       

       

       

        

       

              

       

continuedlicensingofauserthatisnotmeetingitsobligations,andagreesthat

thesection112and114statutorylicensesshouldbeamendedtoincludea

terminationprovisionakintothatinsection115.

Public Broadcaster Statutory License

 Createaunifiedstatutorylicensingschemeforpublicbroadcasters. Public

broadcastersmustengageinamultitudeofnegotiationsandratesetting

proceedingsindifferentforatoclearrightsfortheirover‐the‐airandonline

activities. Especiallyinlightoftherelativelylowroyaltyratespaidbypublic

broadcasters,Officesuggeststhattheratesettingprocessesapplicabletopublic

broadcastersbeconsolidatedwithinaunifiedlicensestructureundersection118

undertheauspicesoftheCRB,wheretheywouldlikelybemuchmoreefficiently

resolved.

D. LicensingEfficiencyandTransparency

TheOfficebelievesthataccurate,comprehensive,andaccessibledata,andincreased

transparency,areessentialtoabetterfunctioningmusiclicensingsystem. Authoritative

datawouldbenefitallparticipantsinthemarketplaceforsoundrecordingsandmusical

works,andfacilitateamoreefficientsystem. Inaddition,itisessentialtomakereliable

usageandpaymentinformationavailabletorightsholders. Toachievethesetwingoals,

theOfficeoffersthefollowingrecommendations:

 Establishincentivesthroughthestatutorylicensingschemeforexistingmarket

playerstocreateanauthoritativepublicdatabase. TheCopyrightOfficebelieves

thatanysolutiontothemusicdataproblemshouldnotbebuiltbythe

governmentbutshouldinsteadleverageexistingindustryresources.

Accordingly,theOfficerecommendsthatthegovernmentestablishincentives

throughthestatutorylicensingregimetoencourageprivateactorstocoordinate

theireffortsandcontributetoapubliclyaccessibleandauthoritativedatabase,

includingbyencouragingtheadoptionanddisseminationofuniversaldata

standards. Tofacilitatethisprocess,theCopyrightOfficeshouldprovide

regulatoryoversightregardingstandardsandgoals.

 Establishtransparencyindirectdeals. Throughoutthestudy,aparamount

concernofsongwritersandrecordingartistshasbeentransparencyinthe

reportingandpaymentofwriterandartistsharesofroyalties,especiallyinthe

contextofdirectdealsnegotiatedbypublishersandlabelsoutsideofthePROs

andSoundExchange,whichmayinvolvesubstantialadvancesorequity

arrangements. Theseconcernsshouldbeaddressedaspartofanyupdated

licensingframework,especiallyonethatallowspublisherstooptoutofthe

statutorylicensingsystemandpursuedirectnegotiations. Inthecaseofdirect

(18)

       

         

           

       

            

       

        

       

         

       

       

       

        

           

       

       

       

              

       

       

       

       

              

              

       

       

         

       

       

       

       

        

       

              

 

       

       

allowingsongwritersandartiststoelecttoreceivetheirsharesofroyaltiesfrom

thelicenseethroughtheirchosenlicensingentity.

E. AnUpdatedMusicLicensingSystem

Toimplementtheprinciplesandrecommendationslaidoutabove,theCopyrightOffice

isproposinganupdatedframeworkforthelicensingofmusicalworks. Thebasic

componentsofthisproposalareasfollows:

 MROs. UndertheOffice’sproposal,excepttotheextenttheychosetooptoutof

theblanketstatutorysystem,publishersandsongwriterswouldlicensetheir

publicperformanceandmechanicalrightsthroughMROs.

o AnMROcouldbeanyentityrepresentingthemusicalworksof

publishersandsongwriterswithamarketshareinthemechanicaland/or

performancemarketaboveacertainminimumthreshold,forexample,

5%. Existingrightsorganizations,suchasASCAP,BMI,HFAandothers,

couldthusqualifyasMROs.

o EachMROwouldenjoyanantitrustexemptiontonegotiateperformance

andmechanicallicensescollectivelyonbehalfofitsmembers—aswould

licenseegroupsnegotiatingwiththeMROs—withtheCRBavailableto

establisharateincaseofadispute. ButMROscouldnotcoordinatewith

oneanotherandwouldbesubjecttoatleastroutineantitrustoversight.

o EachMROwouldberequiredtosupplyacompletelistofthepublishers,

works,percentagesharesandrightsitrepresented,aswellastheMRO’s

licensingcontactinformation,totheGMRO,andwouldbeobligatedto

keepthatinformationcurrent. MROswouldnothavetosharealloftheir

dataforpurposesofthepublicdatabase. Forexample,therewouldbeno

needforanMROtoprovidecontactinformationforitsmembers(other

thanthosethatoptedout)sincetheMROwouldberesponsiblefor

distributingroyaltiesunderthelicensesitissued.

o MROswouldalsoberesponsiblefornotifyingtheGMROofany

membersthathadexercisedopt‐outrightsbyprovidingtherelevantopt‐

outinformation,includingwhereadirectlicensemightbesought,so

potentiallicenseeswouldknowwheretogoforlicenseauthority.

 GMRO. EventhoughmostlicensingactivitywouldbecarriedoutbytheMROs

anddirectlylicensingpublishers,thehubofthenewlicensingstructurewould

bethe“general”MROorGMRO. TheGMROwouldhavecertainimportant

responsibilities:

o First,theGMROwouldberesponsibleformaintainingapublicly

(19)

       

        

       

                

       

       

       

        

       

       

          

       

       

              

          

       

       

              

       

         

              

       

              

       

              

          

       

       

            

       

       

              

       

       

        

       

     

              

       

       

                

wouldincorporatedatasuppliedbytheMROsandotherauthoritative

sources. TheGMROwouldactivelygathermissingdata,reconcile

conflictingdata,andcorrectflaweddata,andwouldalsoprovidea

processtohandlecompetingownershipclaims. Inadditiontomusical

workdata,theGMROwouldalsoincorporatesoundrecordingdata—

presumablyfromSoundExchange—intothepublicdatabase,andbe

responsiblefordevelopingadditionaldatathatmatchedsound

recordingswithmusicalworkstofacilitatemoreefficientlicensing.

o Second,theGMROwouldalsoserveasthedefaultlicensingand

collectionagentformusicalworks(orsharesofworks)thatlicensees

wereunabletoassociatewithanMROoropt‐outpublisher. Services

withusage‐basedpaymentobligationswouldtransmitrecordsofusefor

unmatchedworks,alongwithassociatedpaymentsandanadministrative

fee,totheGMRO. TheGMROwouldthenattempttoidentifytheMRO

orindividualcopyrightownersand,ifsuccessful,paytheroyaltiesout. If

unsuccessful,theGMROwouldaddtheusagerecordtoapublic

unclaimedroyaltieslistandholdthefundsforsomeperiodoftime—e.g.,

threeyears—toseeifaclaimantcameforward. Asisthecasewith

SoundExchange,afterthatperiod,theGMROcoulduseanyremaining

unclaimedfundstohelpoffsetthecostsofitsoperations.

 GMROfundingandresources. TheCopyrightOfficebelievesthatboth

copyrightownersandusersshouldprovidesupportfortheGMRO,asboth

groupswillbenefitfromitsactivities. UndertheOffice’sproposal,everyMRO,

aswellasSoundExchange,wouldberequiredtocontributekeyelementsofdata

tocreateandmaintainacentralizedmusicdatabase. MROswouldbe

responsibleforallocatinganddistributingthevastmajorityofroyalties. In

exchangeforthesecontributionsonthepartofcopyrightowners,theOffice

believesthatmostdirectfinancialsupportfortheGMROshouldcomefromfees

chargedtousersofthesection112,114and115licenses. Thus,although

licenseeswouldbepayingroyaltiestoMROsandindividualpublishers

directly—andSoundExchangeaswell—theywouldhaveaseparateobligationto

payalicensingsurchargetotheGMRO. Thesurchargetobepaidbystatutory

licenseescouldbedeterminedbytheCRBbasedontheGMRO’scosts(and

withoutconsiderationofroyaltyrates)throughaseparateadministrative

process. Thesurchargewouldbeoffsetbyadministrativefeesandothersources

ofincomefortheGMRO,includingany“blackbox”fundsunclaimedby

copyrightowners.

 CopyrightRoyaltyBoardimprovements. UndertheCopyrightOffice’sproposal,

ratesettingbytheCRBwouldshiftfromafive‐yearcycletoasystemunder

whichtheCRBwouldstepinonlyasnecessarywhenanMROor

(20)

       

       

              

       

                

       

        

          

       

       

       

              

       

         

          

       

       

              

        

        

 

   

createopportunitiesforcombinedratesettingproceedingsfornoninteractive

services(e.g.,internet,terrestrial,andsatelliteradio)encompassingbothsound

recordingsandmusicalworks. TheOfficerecommendsotherprocedural

adjustmentstotheCRBaswell—includingadjustmentstothestatutorily

prescribedlitigationprocessanditssettlementprocedures. Itwouldalsobe

worthwhiletoremoveunnecessaryproceduraldetailsinthestatutethatare

betterlefttoregulationbytheCRB.

 Regulatoryimplementation. TheCopyrightOfficerecommendsthatifCongress

actstorestructurethemusiclicensingsystem,itwouldbemostproductivefor

thelegislationtosetouttheessentialelementsoftheupdatedsystembutleave

thedetailstobeimplementedthroughregulationbytheCopyrightOfficeand,in

ratesettingmatters,theCRB. Suchaconstructwouldlikelybemorerealisticto

enactthanahighlydetailedstatutoryprescription—especiallyinthecaseof

musiclicensing,wheretheparticularscanbeoverwhelming.

 Furtherevaluation. ShouldCongresschoosetoembarkuponaseriesofchanges

tothelicensingsystemasdescribedabove,theOfficerecommendsthatthenew

systembeevaluatedbytheCopyrightOfficeafterithasbeeninoperationfora

periodofseveralyears. Assumingthenewlicensingframeworkincludesanopt‐

outmechanism,theefficacyofthatprocesswouldbeofparticularinterest.

(21)

       

       

            

       

              

       

       

       

                

            

       

              

       

                

       

         

       

       

       

       

       

         

       

       

       

            

       

       

       

       

              

       

       

                

       

              

       

I.

Introduction

TheUnitedStateshasthemostinnovativeandinfluentialmusiccultureintheworld,

butoursystemforenablingthepaiduseofmusic—andensuringcompensationforits

creators—lagsfarbehind. Thestructuresthatevolvedinthepreviouscenturyto

facilitatethelawfulexploitationofmusicalworksandsoundrecordings,whileperhaps

adequatefortheeraofdiscsandtapes,areundersignificantstress. Fromacopyright

perspective,wearetryingtodeliverbitsandbytesthroughaVictrola.

Itisatestamenttotheirresistiblepowerofmusicthatindustryandmarketparticipants

havedonetheirbesttoadapttheoldmethods,includingpre‐digitalgovernment

policies,toembracecurrenttechnologiesandconsumerexpectations. Butthecostsof

failingtoupdateouroutmodedlicensingmethodsareescalating. Evenwhen

distributorsareperfectlywillingtopaylicensingfees,theymayfinditdifficultto

identifytheownersofthemusictheyuse. Thoseseekingtolaunchnewdelivery

platformsareconstrained—andsometimesevendefeated—bythecomplexitiesand

expenseofconvolutedclearanceprocesses. Perhapsmostconcerningisthatmany

deeplytalentedsongwritersanddevelopingartistsnowquestionwhetheracareerin

musicisrealisticunderthecurrentregime.

Asmightbeexpected,manyoftheissuesraisedbytheparticipantsinthisstudyofthe

musicmarketplacerevolvedaroundgovernmentmandates,inparticulartheroleofthe

antitrustconsentdecreesgoverningthelicensingofperformancerightsinmusicalworks

byperformingrightsorganizations(“PROs”),thesection115“mechanical”licensefor

thereproductionanddistributionofmusicalworks,andthesection112and114licenses

forthedigitalperformanceofsoundrecordings.

Thereisaprofoundconvictiononthepartofmusicpublishersandsongwritersthat

governmentregulationoftheratesforthereproduction,distribution,andpublic

performanceofmusicalworkshassignificantlydepressedtheratesthatwould

otherwisebepaidforthoseusesinanunrestrictedmarketplace. Thestandards

employedforthesection115andPROratesettingproceedings—section801(b)(1)’sfour‐

factortestformechanicalusesandthe“reasonablefee”standardoftheconsentdecrees

(whichcannottakeintoaccountsoundrecordingperformancerates)—areperceivedas

producingbelow‐marketrates,especiallywhencomparedtoratespaidforanalogous

usesofsoundrecordings. Ontheothersideofthefence,licenseesurgethatgovernment

oversightisessentialtoforestallallegedmonopolisticpracticesonthepartofthePROs

andlargemusicpublishers.

ThePROsareviewedasbothasablessingandathreat. Licenseeslaudtheefficiencies

oftheblanketlicensestheyofferwhileatthesametimebemoaningthesocieties’

perceivedbargainingpositionasaresultofthatverybreadth. Songwriters,fortheir

(22)

       

       

         

       

       

       

       

              

       

     

       

       

              

       

        

       

       

           

       

       

       

       

   

       

       

                

        

                

       

     

       

       

              

       

       

       

       

          

         

payment,shouldmajorpublishersopttowithdrawfromthePROsandlicense

performancerightsdirectly—assomepublishershavesuggestedtheymaydoinaquest

forhigherratesthanthosesetbytheratecourtsundertheconsentdecrees.

Withrespecttothesection112and114licensesfortheperformanceofsoundrecordings,

thedebatehascenteredonthedisparateratestandardsfordifferingclassesofdigital

users—themoremalleable801(b)(1)standardthatisappliedtosatelliteradioversusthe

willingbuyer/willingsellerstandardforcompetingonlineradioservices—aswellasthe

overallburdenandexpenseoftheCRBratesettingprocess. Internetradioproviders

complainthattheCRBprocesshasyieldedratesthathaverequiredthemtoseek

congressionalintervention.

Therearedifferingopinionsastohowtohandlepre‐1972soundrecordings,whichare

currentlyoutsideoftheambitoffederalcopyrightlawbutprotectedinvaryingdegrees

underdifferingstateregimes. SomeconcurwiththeCopyrightOffice’s2011

recommendationthatpre‐1972recordingsshouldbebroughtfullywithinthescopeof

federalcopyrightprotection,butothersargueforamorelimitedfixornofixatall.

Meanwhile,sincetheinceptionofthestudy,threecourtshaveheldthatthepublic

performanceofpre‐1972recordingsissubjecttoprotectionunderapplicablestatelaw,

furthercomplicatingthelicensinglandscape.

Andlastbutnotleastisthelongstandingissueofwhetherterrestrialradiobroadcasters

shouldcontinuetobeexemptedundertheCopyrightActfrompayingroyaltiesforthe

performancesofsoundrecordingsthatdrivetheirmultibilliondollarindustry—adebate

thathasbeensharpenedasonlineradioservicesseektocompetewiththeirterrestrial

counterparts.

Atthesametime,stakeholderswidelyacknowledgethatthereisaneedforuniversal

datastandardstofacilitatetheidentificationofmusicalworksandsoundrecordings,

andthelicensingprocessgenerally. Inparticular,thereisbroadrecognitionofthe

necessityforreliabledatatomatchsoundrecordingstothemusicalworkstheyembody.

Butthereisdiscordastohowtoaddresstheseproblems. Somemarketparticipantsare

willingtosharethedatatheyaccumulatewiththeworld,whileothersarereluctantto

doso.

Despitethewiderangeofviewpointsexpressedinthecourseofthisstudy,theOffice’s

reviewoftheissueshasconfirmedoneoverarchingpoint:thatourmusiclicensing

systemisinneedofrepair. Thequestion,then,ishowtofixit,inlightoftheoften

conflictingobjectivesoflongtimeindustryparticipantswithvestedinterestsin

traditionalbusinessmodelsandinfrastructure;digitaldistributorsthatdonotproduce

orownmusicandforwhichmusicrepresentsmerelyacostofdoingbusiness;

consumerswhoseappetiteformusicthroughvariedplatformsanddevicesonly

continuestogrow;andindividualcreatorswhoseverylivelihoodsareatstake. This

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Giventheircomplexityandsignificance,manyoftheissuesaddressedbelowwould

themselvesbeworthyofaseparatereport. Butinsteadoffocusingoneachparticular

licensingprocessasanisolatedproblem,thegoalofthisstudyistoilluminatethe

systemasawhole—includinginterrelatedissuesandconcerns—toseeiftheremaybea

balancedsetofchangesthatcouldprovidebenefitstoall. Ratherthanpresentadetailed

legislativeproposal,then,withalloftheintricacythatwouldentail,thereportinstead

suggestssomekeyprinciplesandmodificationsthattheCopyrightOfficebelieves

wouldbeusefulinframingabettersystem.

Theideasdescribedbelowarethusintendedtoserveasausefulframeworkfor

continuingdiscussionofhowwemightreinventourmusiclicensingsystem,ratherthan

afullydevelopedanswer. AsCongressconsidersarangeofpotentialamendmentsto

ourcopyrightlaws,theOfficehopesthatinterestedpartieswilltakeadvantageofthis

uniqueopportunitytoimproveourmusiclicensingprocessforthedigitalage.

A.

Study

History

InApril2013,Congress,ledbytheHouseJudiciaryCommittee,beganacomprehensive

reviewofthenation’scopyrightlawstoevaluate“whetherthelawsarestillworkingin

thedigitalage.”1 Themyriadissuesaffectingthemusicindustryhavebeenasignificant

focusofthatreview.2

TheOfficeinitiatedthisstudytoilluminatecriticalconcernsofthemusicmarketplace

andtoidentifypotentialavenuesforchange. OnMarch17,2014,theOfficepublished

aninitialNoticeofInquiryintheFederalRegister(the“FirstNotice”)requestingpublic

commentontwenty‐foursubjectsaffectingtheexistingmusiclicensingenvironment.3

1 PressRelease,H.Comm.ontheJudiciary,ChairmanGoodlatteAnnouncesComprehensive

ReviewofCopyrightLaws(Apr.24,2013),http://judiciary.house.gov/index.cfm/2013/4/

chairmangoodlatteannouncescomprehensivereviewofcopyrightlaw.

2 Oftheseventeenhearingsthathavebeenheldsofaraspartofthecongressionalreview,two

werespecificallydedicatedtomusiclicensing. Music Licensing Under Title 17 (Part I & II): Hearing Before the Subcomm. on Courts, Intell. Prop., and the Internet of the H. Comm. on the Judiciary,113th Cong.(2014)(“Music Licensing Hearings”). Musicindustryrepresentativesalsoparticipatedina numberofotherhearings. See, e.g.,Moral Rights, Termination Rights, Resale Royalty, and Copyright Term: Hearing Before the Subcomm. on Courts, Intell. Prop. and the Internet of the H. Comm. on the Judiciary,113thCong.(2014);Section 512 of Title 17: Hearing Before the Subcomm. on Courts, Intell. Prop. and the Internet of the H. Comm. on the Judiciary,113thCong.(2014);The Scope of Fair Use: Hearing Before the Subcomm. on Courts, Intell. Prop. and the Internet of the H. Comm. on the Judiciary, 113thCong.(2014).

3 MusicLicensingStudy:NoticeandRequestforPublicComment,78Fed.Reg.14,739(Mar.17,

2014). ThisNoticeofInquiry,alongwiththeOffice’ssecondNoticeofInquiryandNoticeof

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TheOfficereceived84writtencommentsinresponsetoitsnotice,spanningabroad

spectrumofinterestedparties,includingmusicindustryassociations,serviceproviders

andtechnologycompanies,legalscholars,publicinterestgroups,andindividualartists

andcreators.4

InJune2014,theOfficeconductedthreetwo‐daypublicroundtablesinNashville,Los

Angeles,andNewYorkCity.5 Theroundtablesprovidedparticipantswiththe

opportunitytosharetheirviewsonthetopicsidentifiedintheFirstNoticeandother

issuespertainingtoourmusiclicensingsystemandhowitmightbeimproved.

Inaddition,onJuly23,2014,theOfficepublishedasecondNoticeofInquiry(“Second

Notice”)requestingfurthercommentsonanumberofsignificantissuesraisedinearlier

commentsanddiscussedattheroundtables.6 TheOfficereceived51substantivewritten

commentsinresponsetotheSecondNotice,againrepresentingawidevarietyof

viewpoints,onthesesubjects.7

B.

Licensing

and

Ratesetting

Charts

TheOfficehaspreparedaseriesofchartstoillustrateourcurrentsystemsforlicensing

ofmusicalworksandsoundrecordingsandtheratesettingproceduresundertheseveral

statutorylicenses,aswellashowthoseprocesseswouldbealteredasaresultofthe

modificationsproposedbytheOffice. Theseappearatthebackofthestudyin

AppendixD. TheOfficehopesthatthesechartswillprovehelpfultoreadersasthey

maketheirwaythroughthisreport.

Office’sNoticesofInquiry,alongwithalistofparticipantsintheOffice’spublicroundtables,is

attachedasAppendixB.

4 ThecommentsreceivedinresponsetotheFirstNoticeareavailableontheCopyrightOffice

websiteathttp://copyright.gov/docs/musiclicensingstudy/comments/Docket2014_3/index.html.

Referencestothesecommentsinthisdocumentarebypartyname(abbreviatedwhere

appropriate)followedby“FirstNoticeComments”(e.g.,“DiMAFirstNoticeComments”).

5 See MusicLicensingStudy,79Fed.Reg.25,626(May5,2014). Transcriptsoftheproceedingsat

eachofthethreeroundtablesareavailableontheCopyrightOfficewebsiteathttp://copyright. gov/docs/musiclicensingstudy/transcripts/.

6 MusicLicensingStudy:SecondRequestforComments,79Fed.Reg.42,833(July23,2014).

7 ThecommentsreceivedinresponsetotheSecondNoticeareavailableontheCopyrightOffice

websiteathttp://copyright.gov/docs/musiclicensingstudy/comments/Docket2014_3/

extension_comments/. Referencestothesecommentsinthisdocumentarebypartyname

(abbreviatedwhereappropriate)followedby“SecondNoticeComments”(e.g.,“RIAASecond

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II.

Music

Licensing

Landscape

Ourrulesformusiclicensingarecomplexanddauntingevenforthosefamiliarwiththe

terrain. Tobeginwith,ourlicensingstructuresmustaddresstwodifferentspeciesof

copyright—thesoundrecordingandthemusicalwork—residinginasingleproduct.

Eachoftheseseparatecopyrights,inturn,itselfrepresentsseveraldifferentexclusive

rightsthatmaybeseparatelylicensed,includingtherightsofreproduction,distribution,

publicperformance,aswellastherighttosynchronizeworkswithvisualcontent.

Thesituationisfurthercomplicatedbythefactthatmanylicensingtransactionsare

regulatedbythegovernment. Butthegovernmentruleshavenotbeenimplementedin

aunifiedorsystematicfashion. Instead,theyrepresentaseriesofstatutoryandjudicial

mandatesthatcameintoeffectatvariouspointsduringthelastcenturytoaddress

particularconcernsoftheday. Andstillmorechallengingisthatnotalllicensingis

conductedaccordingtothesegovernment‐mandatedprotocols. Somelicensingis

permittedtotranspireintheprivatemarketplacewithoutgovernmentoversight. In

addition,therearevoluntaryworkaroundstothegovernmentprocesses—moreefficient

alternativesthathavegrownupliketreesaroundthegovernmentrulesandarenow

deeplyrooted.

Thissectionprovidesanintroductiontoourmusiclicensingsystemandthosewho

participateinit.8 Beforeturningtothechallengeswefaceandhowtheymightbe

addressed,itisimportanttounderstandwhereweareandhowwegothere.

A.

Copyright

Overview

1.

Brief

History

of

Copyright

Protection

for

Music

Congresspassedthefirstfederalcopyrightactin1790.9 Thatactdidnotprovideexpress

protectionformusicalcompositions(or“musicalworks”intheparlanceofthecurrent

CopyrightAct),thoughsuchworkscouldberegisteredas“books.”10 Then,in1831,

Congressamendedthelawtoprovideexpresslythatmusicalworksweresubjectto

federalcopyrightprotection.11

8 Asnotedabove,theOfficehasincludedchartsinAppendixDofthisreportthatprovidea

bird’s‐eyeviewofthelicensingandratesettingsystemsformusic. Thechartsareintendedas high‐levelreferencesanddonotcaptureeverynuanceorquirkofthesystem. Alistof

abbreviationsusedinthereportisincludedasAppendixC.

9 ActofMay31,1790,ch.15,1Stat.124.

10 See Clayton v. Stone,5F.Cas.999,1000(C.C.S.D.N.Y.1829)(No.2872);I.TrotterHardy,

Copyright and New Use Technologies,23NOVAL.REV.659,664(1999).

References

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