August 27, 2014 1:48 pm

Artists and publishers seek reform of US music licensing

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SYDNEY, AUSTRALIA - NOVEMBER 12: Thom Yorke of Radiohead performs live on stage at Sydney Entertainment Centre on November 12, 2012 in Sydney, Australia. (Photo by Mark Metcalfe/Getty Images)©Getty

Radiohead frontman Thom Yorke has attacked the small royalties paid out by digital providers

A Department of Justice review into the antiquated US music licensing system is highlighting the tension between digital music services and publishers, who claim they are being left behind by innovations in music consumption.

As Google prepares to launch a YouTube subscription music service and Apple readies its Beats Music acquisition, the country’s two largest organisations that licence song rights say artists are not receiving fair pay for their works.

The Association of Songwriters, Composers and Publishers, and Broadcast Media, which control more than 90 per cent of song rights in the US, are urging the DoJ to loosen a pair of second world war-era antitrust exemptions – known as consent decrees – that govern what collective licensing bodies can charge.

The review comes after a rare court ruling earlier this year requiring Pandora, the streaming service, to pay just 1.85 per cent of its revenue for access to Ascap’s repertoire of 9m songs. Ascap had been pushing for a 3 per cent rate, while Pandora wanted the 1.7 per cent paid by traditional AM/FM radio.

Many popular artists have also publicly bemoaned what they say are paltry royalties paid out by digital providers. After a round of attacks from Radiohead frontman Thom Yorke, Spotify revealed last year that it paid artists as little as $0.006 per song play. Bette Midler tweeted this spring that nearly 4.2m plays on Pandora earned her just $114.11 in performance royalties.

This is exacerbated, the rights owners argue, by falling music industry revenues. US music industry revenues have decreased from a peak of $14.6bn in 1999 to just $7bn in 2013, according to data provided by the Recording Industry Association.

But music platforms, such as streaming providers and AM/FM radio broadcasters, charge that the proposed modifications would serve only to facilitate price fixing and anti-competitive behaviour similar to that seen before the original consent decrees were enacted in 1941.

“As evidenced by the outpouring of comments to the Department of Justice, Pandora stands alongside many other diverse entities in stressing the continued need for the protections afforded by the Ascap and BMI consent decrees,” said Dave Grimaldi, Pandora’s director of public affairs.

All parties agree, however, that the music ecosystem must be modernised to cope with technological change and to better incorporate stakeholders.

The existing compulsory licensing system revolves around performance rights organisations that act as middlemen by issuing blanket licences to providers and collecting and distributing royalties to member artists. In accordance with the consent decrees, they are required to grant licensees access to their song repertoires and are limited in what rates they can charge.

The framework was developed – and has been upheld for the past 70 years – as a way to avoid the drudgery of licensing thousands of individual transactions.

Ed Black, a partner at Ropes & Gray who specialises in media law, said: “[Both sides] know and agree that we can’t do these deals by custom fabricating expensive transactions with legal teams every time you want to pay a nickel to hear a song in a restaurant.”

The system functioned well enough during the 20th century when music was distributed by physical means such as CDs, cassettes and vinyl. But the emergence of digital providers and internet and satellite radio has transformed what was once an ownership model into an access model – namely, where users prefer to stream songs rather than buy them.

This change in landscape has upended the uneasy truce once forged among artists, publishers, record labels and collective licensing bodies, and has created a sense of urgency to reform a framework designed during a different era.

However, breaking the stalemate is seen by many as a zero-sum outcome in which they could easily find themselves on the wrong side.

“There’s a growing recognition that this is not the time to rearrange deck chairs on the Titanic”, said a House judiciary committee aide. “We have to look at different approaches for how music licensing should look.”

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