The digital revolution famously upended the music industry and transformed the way songs are consumed. Gone are the days of cassette tape constraints and shelling out $17 for a new album; instead, we are left with an endless sea of listening material—accessible wherever, and practically free.
Until last week, music copyright law basically hadn't changed whatsoever since the late '90s. On Thursday, the Musical Works Modernization Act was signed into law, bringing changes to digital music royalties, copyright privileges for oldies, and the payment model for music producers.
While the legislation didn't address the persistent complaints of low pay rates for streaming, "some of the changes are pretty important and pretty huge," according to entertainment lawyer and University of California–Los Angeles professor Don Franzen.
In a conversation with Pacific Standard, Franzen broke down what the legislation means for the music industry, and what industry-rattling strategies Spotify might be cooking up.
The biggest change with the new law is the creation of blanket licensing for digital music. What exactly is that, and why was it necessary?
The Copyright Act of 1909 created the mechanical license—a license to reproduce a composition on a sound recording. That was a way to compensate songwriters back when the recording industry first came into existence. And it has always been on a per song basis. For example, if you wanted to put out a CD or a vinyl disc, you would go to [mechanical rights licensing organization] Harry Fox—most everything is listed there—and you would get a license for that song. That worked pretty well until the digital and streaming age. What we have now is a very cumbersome system of trying to do that on a per song basis, which has proven to be a real drain on time, energy, and money.
The new law creates a blanket license, which means when you have the license, you won't have to come back every time for every song. You'll be able to cover a whole range of songs; whichever publishing house or composer or songwriter that owns those songs, you'll have a license that covers all of them, the same way as in theatrical performance, when you play in a concert hall, if you want to perform "Summertime," you don't have to write to the Gershwin estate and ask "Can I perform 'Summertime?'"
Theaters, concert halls, and restaurants all have blanket licenses that basically give them access to the entire catalog. Now that will also exist for the digital transmission of music: Permanent downloads, limited downloads, and interactive streams will all be covered by this blanket license. That will greatly reduce the transaction cost of streaming.
The new law also created the Mechanical Licensing Collective database. That's for the blanket licensing?
The new collective will be responsible for collecting the royalties that are generated from the licenses, distributing to the rights holders, also maintaining a public database identifying the works with their owners—which is huge, because the information has been all scattered up until now. It's been a big challenge for services like Spotify and Pandora just to identify where they should get licenses from.
This is one thing I've been confused about. To upload to Spotify until very recently, you had to go through a label or a distributor. So, why wouldn't that information be automatically uploaded as a condition to get your music on Spotify?
If you're with a major label it's probably not a problem. But every year, there are orphan accounts. In other words, there are songs or music being streamed, and they don't know who to pay. YouTube sets aside large sums of money—tens of millions of dollars—where they don't know who to pay.
Why would there be orphan accounts?
It's because the data was incomplete, or it didn't come from a major label, or maybe there was an attempt to upload the data ... but it didn't get into the system. There could be lots of reasons.
One of the things that hopefully this new legislation will address is getting more of the money to the rights holders that should have been getting paid all along. And that will be through a centralized licensing system and a centralized database, and an ability therefore to match recordings to rights holders better. And the new collective will be charged with holding unclaimed royalties for at least three years while they try to identify who to pay them to. It should end up getting money back to the people who should have been getting money all along.
Why is there a price ceiling for how much artists and songwriters can charge, but no floor?
That's how mechanical licenses work. Whatever they set as the blanket license fee, nobody's going to be able to charge more than that. But somebody could agree on a lower fee—let's say a university wants to use a song for educational purposes, they could agree to give it on a reduced fee, or even for free since it's educational. For example, the copyright office sets approximately nine cents for three minutes. You can get a license to do a song. For about nine cents per copy for approximately a three-minute song. Since you can obtain that as a matter of right, nobody can say I want 10 cents because you can go and get it for nine cents anyway.
The negotiations seem stacked against artists.
Well, in once sense artists give up a right, but in another sense, it's also making it possible for songwriters to always get compensated. And that's how the mechanical licensing system has worked since 1909. Songwriters get compensated, but they also can't stop you from recording a song. That's why we have covers. Otherwise, just imagine if you had to go to songwriters every time if you had to make a cover.
Will this affect sample clearance? I know that can be a big headache in hip-hop.
It seems to me that, at least for downloads and interactive streams, this legislation is going to make sampling easier. We're not creating a blanket license for traditional physical recordings. That would have to create a song-by-song license, and that's where sampling becomes so difficult. Because you have to clear every sample if it's a nominal fair use. There's actually a lot of litigation about what fair use is when you sample a recording. There's a split between the Sixth Circuit and Ninth Circuit on that; sampling issues are not completely resolved by this act.
Can you explain what the new law did for recordings dated pre-1972? Those didn't have copyright protections?
The component for pre-1972 protection rights will bring to an end litigation that's been going on all over the country in different jurisdictions, of holders of sound recordings suing trying to collect performance royalties from all these different platforms. Under state law they were entitled to protection, but federal law, for historic reasons, did not actually protect sound recordings until 1972. So pre-'72 recordings were not protected by copyright until the 1970s. There was a strange gap in federal copyright law. But now the rights holders will get paid.
Was that because the legislation that had protected those recordings had lapsed?
No. Until the 1970s, when Congress amended the copyright law, there was no protection for a sound recording. There was copyright recording for song compositions [mechanical rights], but the actual master recording was not protected by copyright. The new act protects pre-1972 recordings, which will create an income stream to the holders of those recordings that was in dispute in New York and California and Florida, all over the place. Some courts were ruling one way, and other courts ruling the other way. It was a big mess.
The new law also changes how producers share royalties. Can you walk me through this part?
Up until now, SoundExchange, which collects digital performance rights, has split royalties so 50 percent goes to the owner of the recording and 50 percent goes to the participating artist. But excluded from SoundExchange's way that people get paid has been record producers. A producer is a very important element in the creation of an album or a song. The bill allows SoundExchange to accept a letter addressed to SoundExchange saying, from now on, please be paid X percent for producers—somewhere between 2 and 5 percent of royalty on a record. What we call producer points. And in their contract they may tell an artist to send a letter to SoundExchange awarding those points to them.
Previously, SoundExchange didn't have the authority to accept such a letter, because there had been nothing in legislation talking about producers. But now SoundExchange can accept that letter and pay out to producers, just like they have been paying out to artists and labels who own master recordings.
Spotify recently moved to allow artists to directly upload to the service without a label or distributor, sort of like Bandcamp. Is that connected—or in anticipation of—this legislation?
No, that was just their own move. This legislation doesn't address that at all. My read of that is that it's Spotify trying to get away from total label dependence, which is what they've had by now. And this is their effort to get to a position where they can make direct deals with artist or direct deals with artist representatives.
Spotify may be thinking about how Netflix has moved from basically a library licensing model to basically a producing model. And while they're not saying they're doing that yet, that may be what they're thinking about: maybe we start to produce, maybe we start to create content. Or, at least in the interim, we acquire content directly and bypass the label.
This interview has been edited for length and clarity.