Money for Something:
Music Licensing in the 21st Century
Dana A. Scherer
Analyst in Telecommunications
May 7, 2015
Congressional Research Service
7-5700
www.crs.gov
R43984
Money for Something: Music Licensing in the 21st Century
Summary
Taylor Swift made headlines around the world when she, in conjunction with other holders of
rights to her music, pulled her entire catalog of music from the digital steaming service Spotify in
November 2014. As a songwriter, a composer, and a singer, Ms. Swift is entitled to get paid for
(1) the reproductions and performances of the notes and lyrics she creates (the musical works), as
well as (2) the reproductions and performances of the sound of her voice combined with the
instruments (the sound recordings). The amount Ms. Swift gets paid for her musical works and
sound recordings depends on market forces and on contracts among a variety of private-sector
entities. These forces and contracts are greatly affected by federal copyright law.
The laws that determine who pays whom in the digital world were written, by and large, at a time
when music was distributed mainly via radio broadcasts or physical media, such as sheet music
and phonograph records, and when each of these forms of distribution represented a distinct
channel with unique characteristics. With the emergence of the Internet, Congress updated some
copyright laws in the 1990s. It applied one set of laws to digital services it viewed as akin to radio
broadcasts, and another set to digital services it viewed as akin to physical media. Since that time,
however, consumers have increasingly been consuming music via digital services that incorporate
attributes of both radio and physical media. Under existing law, the companies that compete in
delivering music to listeners face very different cost structures, depending on the royalty
provisions applicable to their unique business models. The royalties received by songwriters,
performers, music publishers, and record companies for one play or sale of a particular song may
vary greatly, depending upon the particular business model of the company delivering the music.
Congress granted a nonprofit company called SoundExchange the authority to negotiate with
digital music services on behalf of record labels and to agree to royalty schemes that could be
binding on all copyright owners. Several digital services have reached agreements with
SoundExchange. The authority of SoundExchange to reach such agreements expires at the end of
2015.
In February 2015 the U.S. Copyright Office published a report, Copyright and the Music
Marketplace, offering Congress a series of recommendations for changing copyright law in light
of music industry developments. It advocates for greater parity among rights holders and different
licensing services, and greater transparency when they reach privately negotiated agreements.
Music streaming services Spotify and Tidal have reportedly received equity investments from
record labels in exchange for the rights to license their music catalogs. Such investments could
impact the amount of royalties available to artists like Ms. Swift.
Efforts are actively under way, both in Congress and within the executive branch, to update the
legal framework governing the music industry. In the meantime, the courts have been interpreting
how to apply 20th-century copyright laws to a 21st-century music marketplace. This report
describes the current legal framework governing licensing and rate-setting in the music industry.
It also examines the changes in technology and consumer behavior that have reshaped the
industry.
Congressional Research Service
Money for Something: Music Licensing in the 21st Century
Contents
Introduction ...................................................................................................................................... 1
Overview of Legal Framework ........................................................................................................ 2
Reproduction and Distribution Rights ....................................................................................... 2
Public Performance Rights ........................................................................................................ 2
Rights Required ......................................................................................................................... 3
How the Industry Works .................................................................................................................. 4
Songwriters and Music Publishers ............................................................................................ 4
Recording Artists and Record Labels ........................................................................................ 5
Music Licensees ........................................................................................................................ 6
How Copyright Works ..................................................................................................................... 6
Songwriters and Music Publishers ............................................................................................ 6
Reproduction and Distribution Licenses (Mechanical Licenses) ........................................ 6
Musical Work Public Performance Royalties .................................................................... 11
Record Labels and Recording Artists ...................................................................................... 13
Reproduction and Distribution Licenses ........................................................................... 13
Sound Recording Public Performance Royalties .............................................................. 14
Industry Developments and Issues ................................................................................................ 20
“Interactive” Versus “Non-Interactive” Music Services .......................................................... 20
Free Versus Subscription Services and Sales of Music Downloads ........................................ 21
Division of Royalty Payments ................................................................................................. 22
Policy Developments and Issues .................................................................................................... 23
ASCAP and BMI Consent Decree Reviews ............................................................................ 23
Consumption Trends ................................................................................................................ 25
U.S. Copyright Office Recommendations ............................................................................... 26
Bills Introduced in the 114th Congress ..................................................................................... 27
Figures
Figure 1. U.S. Music Publishing Industry Revenue Trends ............................................................. 5
Figure 2. Breakout of Music Publishers’ U.S. Revenues, by Type of Royalty .............................. 13
Figure 3. Trends in Consumer Spending on Music ........................................................................ 25
Tables
Table 1. Compulsory Royalty Rates for Mechanical Rights .......................................................... 10
Table 2. Online Radio Services Owned/Operated by Selected Broadcast Radio Groups .............. 12
Table 3. Royalty Rates Payable to Record Labels for Public Performance Rights ........................ 19
Congressional Research Service
Money for Something: Music Licensing in the 21st Century
Contacts
Author Contact Information........................................................................................................... 28
Congressional Research Service
Money for Something: Music Licensing in the 21st Century
Introduction
Taylor Swift made headlines around the world when she, in conjunction with other holders of
rights to her music, pulled her entire catalog of music from the digital steaming service Spotify in
November 2014.1 As a songwriter, a composer, and a singer, Ms. Swift is entitled under federal
law to get paid for (1) the reproductions and performances of the notes and lyrics she creates (the
musical works), as well as (2) the reproductions and performances of the recorded sound of her
voice combined with the instruments (the sound recordings). Reportedly, Spotify and Ms. Swift
reached an impasse when Spotify declined to prevent listeners of its free, advertising-supported
service from accessing her music, while still making Ms. Swift’s music available to the paying
subscribers of its Spotify Premium Service.2
The amount Ms. Swift gets paid for her musical works and sound recordings depends on market
forces and on contracts among a variety of private-sector entities. These relationships are strongly
influenced by federal laws that affect the licensing of rights to music, particularly copyright and
antitrust laws, as well as the courts’ interpretations of them. Congress wrote these laws, by and
large, at a time when music was distributed mainly via radio broadcasts or physical media, such
as sheet music and phonograph records, and when each of these forms of distribution represented
a distinct channel with unique characteristics.
With the emergence of the Internet, Congress updated some copyright laws in the 1990s. It
attempted to strike a balance between combatting unauthorized use of copyrighted content—a
practice some refer to as “piracy”—and protecting the revenue sources of the various players in
the music industry. It applied one set of copyright laws to digital services it viewed as akin to
radio broadcasts, and another set of laws to digital services it viewed as akin to physical media.
Since that time, however, the emergence of services such as Spotify has, as the U.S. Copyright
Office noted, led to the “blurring of the traditional lines of exploitation.”3 Sorting out who is
owed what money has become increasingly complex. In the meantime, the courts have been
interpreting how to apply 20th-century copyright laws to a 21st-century music marketplace.
Efforts are actively under way, both in Congress and within the executive branch, to update the
legal framework governing the music industry, even as the courts continue to make their mark.
This report describes the current legal framework governing licensing and rate-setting in the
music industry. It also examines the changes in technology and consumer behavior that have
reshaped the industry.
1 Eric Pfanner and Takashi Mochizuki, “Sony Re-Evaluates Support for Free Music Streaming: Move Prompted by
Swift Pulling Music from Spotify,” Wall Street Journal, November 14, 2014; Steve Knopper, “Spotify Founder to
Taylor Swift: ‘Our Interests Are Totally Aligned with Yours,’” Rolling Stone, November 12, 2014,
http://www.rollingstone.com/music/news/spotify-founder-to-taylor-swift-our-interests-are-totally-aligned-with-yours-
20141112. Ms. Swift was not the first artist to withdraw music from Spotify; Thom Yorke, the lead singer of the band
Radiohead, did so in 2013. See Geoff Duncan, “Why is Thom Yorke Pulling His Music from Spotify? In a Word:
Royalties,” Digital Trends, July 15, 2013, http://www.digitaltrends.com/music/how-do-music-royalties-work-and-why-
does-everyone-complain/.
2 Andy Fixmer, “Taylor Swift Record Company Says Spotify Paid a Lot Less Than $6 Million,” Mashable, November
12, 2014, http://mashable.com/2014/11/12/taylor-swift-spotify-payout/.
3 Maria A. Pallante, Register of Copyrights and Director et al., Copyright and the Music Marketplace, U.S. Copyright
Office, February 2015, http://copyright.gov/docs/musiclicensingstudy/ (2015 U.S. Copyright Office Report), p. 25.
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Money for Something: Music Licensing in the 21st Century
Overview of Legal Framework
Under copyright law, creators and performers of musical works have certain legal rights to their
works. They typically license those rights to third parties, which, subject to contracts, may
exercise them on behalf of the composer, songwriter, or performer.
Reproduction and Distribution Rights
Owners of musical works and owners of sound recordings possess, and may authorize others to
exploit, among other rights, the following exclusive rights under the Copyright Act:4
• the right to reproduce the work (e.g., make multiple copies of sheet music or
multiple copies of digital files) (17 U.S.C. §106(1))
• the right to distribute copies of the work to the public by sale or rental (e.g., sell
copies of sheet music in stores, sell copies of digital files on iTunes or Google
Play, or distribute temporary server copies via certain streaming services such as
Spotify) (17 U.S.C. §106(3))
In the context of music publishing, the combination of reproduction and distribution rights is
known as a “mechanical right.” This term dates back to the 1909 Copyright Law, when Congress
required manufacturers of piano rolls to pay music publishing companies for the right to
mechanically reproduce musical compositions.5 As a result, music publishers began issuing
“mechanical licenses” to, and collecting mechanical royalties from, piano-roll manufacturers.6
While the means of transmitting music have gone through numerous changes since, including the
production of vinyl records, cassette tapes, and compact discs (CDs), the term “mechanical
rights” has stuck. For sound recordings, reproductions and distribution rights apply only to
recordings originally made permanent, or “fixed,”7 after February 15, 1972.
Public Performance Rights
The Copyright Act also gives owners of musical works and owners of sound recordings the right
to perform works publicly (17 U.S.C. §106(4) and 17 U.S.C. §106(6), respectively). However, for
sound recordings, this right applies only to digital audio transmissions. Examples of digital audio
transmission services include the Sirius-XM satellite network, the Music Choice cable network,
and online streaming services such as Pandora and Spotify.
4 2015 Copyright Office Report, p. 25. Additional exclusive rights, a detailed description of which is beyond the scope
of this report, include the right to create derivative works (e.g., a new work based on an existing composition) (17
U.S.C. §106(2)) and the right to display the work publicly (e.g., by posting lyrics on a website) (17 U.S.C. §106(5)).
5 A video demonstration of a player piano and mechanical roll in action is available at YouTube, “I’ll See You in My
Dreams—Lee Sims Piano Solo,” published on August 14, 2010, https://www.youtube.com/watch?v=XauZT3GYbY8.
6 Kevin Zimmerman, “Songwriter 101: Understanding Mechanical Royalties,” BMI, March 27, 2005.
7 A fixed work is one “in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under
the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise
communicated for a period of more than transitory duration.” 17 U.S.C. §101. Fixation is an example of the many
terms of art that the Copyright Act frequently employs; these terms often have meanings that differ from ordinary usage
in everyday language. See CRS Report RL33631, Copyright Licensing in Music Distribution, Reproduction, and Public
Performance, by Brian T. Yeh.
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The Copyright Act does not require broadcast radio stations to pay public performance royalties
for broadcasts of sound recordings.8 As described below in “Broadcast Radio ,” Congress
reasoned, and broadcasters assert, that the promotional value of broadcast radio airplay outweighs
any revenue lost by record labels and artists due to a lack of public performance rights for sound
recordings.
Rights Required
Who pays whom in the digital world depends on the means by which people consume music.
Consumers of compact discs purchase the rights to listen to each song on the disc as often as they
wish (in a private setting). Manufacturers of CDs or digital files of songs (typically record labels)
need to pay music publishers for reproduction rights. Retail outlets that sell CDs or digital files of
songs pay record labels for distribution rights, and the record labels in turn pay the music
publishers fees based on retail sales.9
Listeners of radio services have less control over when and where they listen to a song than they
would if they purchased the song outright. Broadcast radio stations only need to pay music
publishers and songwriters for public performance rights.10 Digital services, including the satellite
radio service Sirius XM and the online radio service Pandora, need to pay record labels as well as
music publishers for public performance rights. In practice, artists and record labels get most of
the performance royalty from digital services, while music publishers and songwriters get only a
small fraction.11
Users of an “on demand,” or “interactive” digital radio service (e.g., Spotify’s free and
subscription services and the Vevo music video website) can listen to songs upon request, thereby
experiencing a hybrid of playing a CD and listening to a radio broadcast. To enable multiple
listeners to select songs, the service makes temporary reproductions of digital files on servers. It
pays both reproduction royalties and performance royalties to music publishers/songwriters and
to record labels/artists.12
8 The record label Big Machine Music Group, however, reached a comprehensive licensing agreement with Clear
Channel Media and Entertainment, which operates both broadcast and Internet radio services under the iHeartMedia
brand, in June 2012. Clear Channel Media and Entertainment, “Big Machine Label Group and Clear Channel
Announce Groundbreaking Agreement to Enable Record Company and Its Artists to Participate in All Radio Revenue
Streams and Accelerate Growth of Digital Radio,” press release, June 5, 2012, http://www.businesswire.com/news/
home/20120605005867/en/Big-Machine-Label-Group-Clear-Channel-Announce#.VRxaMuHQJUE.
9 2015 Copyright Office Report, pp. 131-132.
10 The rates may be based on a percentage of a radio station’s revenues or other factors, depending on terms set by the
performance rights organizations.
11 John Seabrook, “Revenue Streams: Is Spotify the Music Industry’s Friend or Foe,” The New Yorker, November 23,
2014, http://www.newyorker.com/magazine/2014/11/24/revenue-streams.
12 Royalty Exchange, Mechanical and Performance Royalties: What’s the Difference,
https://www.royaltyexchange.com/learn/mechanical-and-performance-royalties-whats-the-difference/; Harry Fox
Agency, Frequently Asked Questions: Digital Definitions, https://www.harryfox.com/find_out/faq.php.
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How the Industry Works
From the viewpoint of copyright law, the music industry comprises three distinct groups of
interests: songwriters and music publishers; recording artists and record labels; and the music
licensees who obtain the right to reproduce, distribute, or publicly perform music. Examples of
music royalty payers include broadcast radio stations; music retailers; digital music streaming
services; and bars, restaurants, and general retailers; as well as concert venues and promoters.
Songwriters and Music Publishers
Music publishers work for songwriters and composers (referred to collectively as “songwriters”
in this report). They are responsible for licensing the intellectual property of their clients and
ensuring that royalties are collected. Songwriters often contract with publishing companies to
administer their musical work copyrights. For example, as a songwriter and composer, Ms. Swift
has a contract with a music publisher (Sony/ATV Music Publishing),13 with which she shares the
rights to her musical works.
Typically, the songwriter of a musical work retains ownership of the copyright. Nevertheless, the
publisher might ultimately control the licensing of the musical work.14 The publisher’s role is to
monitor, promote, and generate revenues from the use of music in formats that require
mechanical licensing rights, including sheet music, compact discs, digital downloads, ringtones,
interactive streaming services, and broadcast radio.
Record labels pay music publishing companies for the right to manufacture CDs and other
physical media. Songwriters and publishers derive royalty income at each step, but may need to
share this income with sub-publishers and coauthors. For songwriters who are entering the music
industry, the contract terms are generally standardized, with about a 50-50 split of royalties, but
songwriters with proven track records may be able to (re)negotiate more favorable contractual
terms, perhaps a 75-25 or 80-20 split.15
Within the United States, the music publishing industry earned about $3.9 billion in revenues and
$600.2 million in profits during 2014, according to IBIS, a research firm. Three firms account for
about 44% of the publishing industry’s revenues: (1) Sony/ATV Music Publishing (20.7%), (2)
Universal Music Publishing Group (17.7%), and (3) Warner Music Group (6.4%).16 After several
years of growth, revenues of the music publishing industry declined between 2008 and 2014 (see
Figure 1).
13 Ben Sisaro, “Sony Threatens to Bypass Licensers in Royalties Battle,” New York Times, July 10, 2014,
http://www.nytimes.com/2014/07/11/business/media/sony-threatens-to-bypass-licensers-in-royalties-battle.html?_r=0.
14 Peter DiCola and David Touve, “Licensing in the Shadow of Copyright,” Stanford Technology Law Review, vol. 17,
no. 397 (Winter 2014), p. 408.
15 Harold L. Vogel, Entertainment Industry Economics: A Guide for Financial Analysis, 9th ed. (New York, NY:
Cambridge University Press, 2015), pp. 275-277.
16 James Crompton, “Music Publishing in the US—Getting a Remix: Digital Media Outlets Have Opened Up New
Revenue Streams for Publishers,” IBISWorld Industry Report 51223, December 2014, pp. 4, 8 (2014 IBISWorld Music
Publishing Report).
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Figure 1. U.S. Music Publishing Industry Revenue Trends
Source: 2014 IBISWorld Music Publishing Report.
Note: Figures not adjusted for inflation.
IBIS predicts that over the next five years, as digital distribution becomes more prevalent,
established songwriters may find it unnecessary to remain aligned with music publishers, and
newer songwriters may be reluctant to sign long-term publishing contracts.17
Recording Artists and Record Labels
Record labels are responsible for finding musical talent, recording their work, and promoting the
artists and their work. Recording artists usually contract with record labels to administer their
sound recording copyrights. For example, as a performer, Ms. Swift has a contract with a record
label (Republic Nashville, a joint venture of Big Machine Records and Universal Music Group),18
with which she shares the rights to her sound recordings.
Recording contracts (especially with the major labels—Sony Corporation, Warner Music Group,
and Universal Music Group) generally require recording artists to transfer their copyrights to the
record label for defined periods of time and defined geographic regions. In return, the recording
artist receives a share of royalties from sales and licenses of the sound recording. Record
companies also finance recordings of music, lend and advance artists funds for expenses, and
attempt to guide the artists’ careers.19 The record companies earn most of their profits from sales
of a relatively small number of hit recordings.
Recording artists also work with independent producers to select material and a musical style.20
Independent producers and independent labels often work with artists as subcontractors for major
17 Ibid., p. 24.
18 Nick Vivarelli, “A Big Year for Big Machine; Firm Adds Publishing Arm, Cuts Royalty Pact, Realizes Hollywood
Ambitions,” Variety, July 30, 2012, p. 8.
19 Vogel, Entertainment Industry Economics, p. 280.
20 For example, Madonna, for her album Rebel Heart, worked with multiple producers. In describing the recording
process, Madonna said, “I didn’t know exactly what I signed on for, so a simple process became a very complex
process. Everyone I worked with is tremendously talented, [but each producer] has also agreed to work with 5,000
other people. I just had to get in where I could fit in.” Jon Pareles, “Madonna on ‘Rebel Heart,’ Her Fall, and More,”
(continued...)
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Money for Something: Music Licensing in the 21st Century
record companies under a variety of financial arrangements.21 For information about proposed
legislation addressing how producers get compensated for their work, see “Bills Introduced in the
114th Congress.”
The three major record labels earned about 56% of the industry’s revenues: (1) Sony Corporation
(19.7%), (2) Universal Music Group (23.7%), and (3) Warner Music Group (12.9%).22 These
companies collectively earned about $7.6 billion in revenues and $450.2 million in profits from
their recording businesses during 2014.23 Few record labels are truly independent, because the
initial financing, manufacturing (at least of CDs), and distribution of the sound recordings are
more efficiently handled by large record companies that can diversify their risks over many
different labels, artists, and styles of music while enjoying other economies of scale.24
Music Licensees
A very large number of entities, from neighborhood bars to broadcast radio stations, transmit
copyrighted music to the public. Such entities must pay royalties to copyright holders. The types
of royalty payments owed and the way those payments are determined vary considerably,
depending mainly upon the way a particular distributor is treated under copyright law.
How Copyright Works
Songwriters and Music Publishers
Reproduction and Distribution Licenses (Mechanical Licenses)
Congress passed the first federal copyright act in 1790.25 The act did not expressly protect
musical compositions (“musical works”), but composers and songwriters could protect their
works by registering them as “books.” In 1831 Congress amended the law to expressly protect
musical works printed and sold as sheet music.26 With the 1909 Copyright Act, Congress added
an exclusive right to make “mechanical” reproductions of songs in “phonorecords.”27 At the time,
this exclusive right of mechanical reproduction applied to music in player pianos.
(...continued)
New York Times, March 5, 2015, http://www.nytimes.com/2015/03/06/arts/music/madonna-talks-about-rebel-heart-her-
fall-and-more.html?_r=0.
21 For detailed descriptions of financial arrangements, see Vogel, Entertainment Industry Economics, pp. 280-281.
22 Ibid., p. 8. In 2013 Sony acquired EMI Group’s publishing division in a partnership with private investors.
23 James Crompton, “Major Music Label Production in the U.S., Low Note: The Internet Will Continue to Decrease
Album Sales, Hurting Revenue,” IBISWorld Industry Report 51222, October 2014, p. 4 (2014 IBISWorld Major Label
Music Production Report).
24 Vogel, Entertainment Industry Economics, p. 281.
25 Act of May 31, 1790, Ch. 15, Stat. 124.
26 Act of Feb. 3, 1831, Ch. 16, 4 Stat. 436.
27 U.S. Congress, House Committee on Patents, To Amend and Consolidate the Acts Respecting Copyright, committee
print, 60th Cong., 2nd sess., February 22, 1909, Rep. 2222, pp. 6-8.
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By 1909, however, Congress was concerned about allegations that one player piano
manufacturer—the Aeolian Company—was seeking to create a monopoly by buying up exclusive
rights from music publishers.28 To address this concern, Congress established the first compulsory
license in U.S. copyright law,29 requiring music publishers to make mechanical reproductions of
their works available to all piano player manufacturers at 2 cents per “part manufactured,”
regardless of how many piano rolls were actually sold.
As technology developed, both mechanical rights and this rate of 2 cents per record subsequently
applied to music distributed via vinyl records, cassette tapes, and compact discs. Prior to
Congress’s adoption of the 1976 Copyright Act, the Register of Copyrights had proposed
eliminating the compulsory license, but record companies opposed the proposal. They argued that
recording artists needed unhampered access to musical material on nondiscriminatory terms, and
that repeal would result in a great upheaval in the sound recording industry with no benefit to the
public. The music publishers countered that the compulsory licensing scheme was no longer
necessary to meet the antitrust problems that existed in 1909. While they much preferred outright
repeal of a compulsory license, they were willing to compromise by accepting a higher royalty
rate in lieu of repeal.30
Congress ultimately concluded in 1976 that the compulsory licensing system was still warranted,
but, based on the prevalence of records that offered multiple songs (i.e., albums), directed the
Copyright Office to apply the rate on a per-song basis instead of a per-record basis.31 This enabled
music publishers to earn more money from each record sale. Although Congress has amended the
law several times, this compulsory license remains in effect today. In the Copyright Act of 1976,
Congress recodified the compulsory license in 17 U.S.C. §115 and raised the statutory rate from
2.0 cents per use to 2.75 cents per song embedded in each record, effective January 1, 1978.
Congress subsequently adjusted this system twice, leading to the creation of the Copyright
Royalty Board (CRB) in 2004.32
The CRB, which is composed of three administrative judges appointed by the Librarian of
Congress, oversees the royalty rates that licensees pay publishers and songwriters for the
mechanical rights to their works. The CRB sets rates every five years for Section 115 licenses, as
required by the Copyright Act.33 While copyright owners and users are free to negotiate voluntary
licenses that depart from the statutory rates and terms, the CRB‐set rate acts as a ceiling for what
the owner may charge.34 The CRB establishes rates for licenses based on policy objectives set
28 U.S. Congress, House Committee on Patents, To Amend and Consolidate the Acts Respecting Copyright, committee
print, 59th Cong., 2nd sess., March 2, 1907, Rep. 7083, Part 2, Views of the Minority, p. 5.
29 2015 U.S. Copyright Office Report, p. 26.
30 U.S. Congress, House Committee on the Judiciary, Copyright Law Revision, committee print, 83rd Cong., 2nd sess.,
March 8, 1967, H.Rept. 90-183, pp. 66-67.
31 Ibid., U.S. Congress, House Committee on the Judiciary, Copyright Law Revision, committee print, 94th Cong., 2nd
sess., September 3, 1976, pp. 110-111. See also Scott Thill, “1948: Columbia’s Microgroove LP Makes Albums Sound
Good,” Wired, June 10, 2010, http://www.wired.com/2010/06/0621first-lp-released/.
32 17 U.S.C. §§801-805; Copyright Royalty and Distribution Reform Act of 2004, P.L. 108-419. See also Copyright
Royalty Tribunal Reform Act of 1993, P.L. 103-198.
33 17 U.S.C. §§801(b)(1) and 801(b)(2).
34 According to the CRB, “virtually no one uses section 115 to license reproductions of musical works, yet the parties
in this proceeding are willing to expend considerable time and expense to litigate its royalty rates and terms. The
Judges are, therefore, seemingly tasked with setting rates and terms for a useless license. The testimony in this
proceeding makes clear, however, that despite its disuse, the section 115 license exerts a ghost-in-the-attic like effect on
(continued...)
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forth in Section 801(b)(1) of the 1976 Copyright Act.35 The Songwriter Equity Act of 2015 (S.
662, H.R. 1283) would substitute the criteria the CRB uses to a “willing buyer, willing seller”
standard. For more information, see “Bills Introduced in the 114th Congress.”
In 1995 Congress enacted the Digital Performance Rights in Sound Recordings Act (DPRSRA).36
Among other provisions, this act amended 17 U.S.C. §115 to expressly cover the reproduction
and distribution of musical works by digital transmission (digital phonorecord deliveries, or
DPDs).37 Congress directed that rates and terms for DPDs should distinguish between “(i) digital
phonorecord deliveries where the reproduction or distribution of a phonorecord is incidental to
the transmission which constitutes the digital phonorecord delivery, and (ii) digital phonorecord
deliveries in general.”38 This distinction prompted an extensive debate about what constitutes an
“incidental DPD.” For several years, the Copyright Office deferred moving forward on a
rulemaking, urging that Congress resolve the matter. In July 2008 the Copyright Office proposed
new rules, determining that “[while] it seems unlikely that Congress will resolve these issues in
the foreseeable future ... the Office believes resolution is crucial in order for the music industry to
survive in the 21st Century.”39
In November 2008, the Copyright Office, recognizing that streaming services make and store
reproductions of musical works on computer servers in order to facilitate streaming, concluded
that these services could utilize the Section 115 compulsory licensing process.40 The Copyright
Office declined to specify whether the temporary reproductions of musical works were an interim
step in public performances (making some streaming services akin to non-interactive digital
services described in Section 112), or a reproduction and distribution that required mechanical
licenses (making some streaming services akin to compact discs and permanent digital
downloads).
In 2009 and again in 2013, the CRB adopted the statutory rates and terms for interactive
streaming services based on an agreement negotiated among representatives of music publishers
and songwriters, record labels, and the streaming services.
Interactive streaming services, including Spotify, obtain both mechanical and public performance
licenses (described in more detail in “Musical Work Public Performance Royalties”) for the
musical works they use. Non-interactive services such as Pandora, however, do not pay
mechanical royalties to music publishers. In its SEC Form 10-K, Pandora states that
(...continued)
all those who live below it.” 2009 Final Rule, p. 4513.
35 These factors include (1) maximizing the availability of public works to the public, (2) affording copyright owners a
fair return on their creative works and copyright users a fair income under existing economic conditions, (3) reflecting
the relative contributions of the copyright owners and users in making products available to the public, and (4)
minimizing any disruptive impact on the structure of the industries involved and on generally prevailing industry
practices. 17 U.S.C. §801(b)(1).
36 P.L. 104-39.
37 U.S. Congress, Senate Committee on the Judiciary, Digital Performance Right in Sound Recordings Act of 1995,
committee print, 104th Cong., 1st sess., August 4, 1995, S.Rept. 104-128 (Washington: GPO, 1995), p. 10.
38 17 U.S.C. §115(c)(3)(D).
39 2008 NPRM, p. 40806.
40 2008 Interim Rule, p. 66174.
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We do not currently pay so-called “mechanical royalties” to music publishers for the
reproduction and distribution of musical works embodied in server copies or transitory
copies used to make streams audible to our listeners. Although not currently a matter of
dispute, if music publishers were to retreat from the publicly stated position of their trade
association that non-interactive streaming does not require the payment of a mechanical
royalties, and a court entered final judgment requiring that payment, our royalty obligations
could increase significantly, which would increase our operating expenses and harm our
business and financial conditions.41
According to the Copyright Office, interactive streaming services represent only a small
percentage of mechanical royalties received by music publishers.42
Table 1 describes the rates that manufacturers and distributors of different types of media pay
music publishers for mechanical rights. There are currently 17 distinct categories of media and
services under the Section 115 license, each with its own specific rate. Under the current regime,
at the outset of a rate-setting proceeding, parties must identify every business model that might be
relevant in the next five years so the CRB can establish a rate for that use.43 The rates that
interactive services pay the publishers are tied to the rates that the services pay record labels for
mechanical rights, which are negotiated in the free market. According to National Music
Publishers Association president and CEO David Israelite, “If they get a better deal, we get a
better deal.”44
41 Pandora 2014 SEC Form 10-K, p. 13. See also Spotify Ltd., Spotify Explained, Royalties: in Detail,
http://www.spotifyartists.com/spotify-explained/#royalties-in-detail.
42 2015 Copyright Office Report, p. 162.
43 2015 Copyright Office Report, p. 171.
44 Ed Christman, “Copyright Royalty Board to Set Mechanical Royalty Rates for Digital Music Services,” Billboard,
April 12, 2012, http://www.billboard.com/biz/articles/news/publishing/1098005/copyright-royalty-board-to-set-
mechanical-royalty-rates-for.
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Table 1. Compulsory Royalty Rates for Mechanical Rights
Applies to Physical Media, Digital Download Services, Digital Interactive, Interactive Streaming
Medium Description Amount
Notes
CDs, LPs, cassettes, and
Payable royalty is linked to
$0.091 per song
Songs > 5 minutes in length
other recordings
the number of units sold
have a rate of $0.0175 per
embodied in a physical
minute or fraction thereof.
medium
Permanent digital
Payable royalty is linked to
$0.091 per song
Songs > 5 minutes in length
downloads (e.g., iTunes)
the number of units sold
have a rate of $0.0175 per
minute or fraction thereof.
Ringtones
Payable royalty is linked to
$0.24 per ringtone
Before the CRB determined
the number of copies sold
that ringtones were subject
to compulsory license in
2006, music publishers
negotiated for ringtone rates
directly. Publishers
introduced these rates to
the CRB as benchmarks,
resulting in higher rates for
ringtones than for full-length
songs.
Interactive subscription
A formula based on
The total amount of
Formula adopted by CRB
streaming services (e.g.,
royalties payable to music
pursuant to 2008 and 2013
Spotify’s $4.99/month
(1) an “all-in” royalty pool
publishers is
settlements reached by
service for personal
(payable to music
trade associations
computers only)
publishers for
(1) at least 10.5% of the
representing music
performance and
music service’s revenue;
publishers, record labels,
mechanical rights);
(2) tied to terms of
songwriters, and digital
(2) a calculation of the
negotiated agreements
streaming services. Codified
payable mechanical royalty
between interactive
in 37 C.F.R. 385 (Subpart B).
pool (after deducting
subscription streaming
public performance
services and record labels
royalties);
Payments to each
(3) an allocation based on
songwriter based on the
the total number of plays
total number of song’s
on the streaming service
monthly plays
per month
Free interactive
Same as above.
Similar to above.
Same as above.
nonsubscription,
advertising-supported
services (e.g., Spotify’s
advertising-supported
service)
Source: 37 C.F.R. §§358.3(a)-(b), §§385.12-385.14, §385.23, Harry Fox Agency, “Rate Charts,”
https://www.harryfox.com/find_out/rate_charts.html; 2015 Copyright Office Report, p. 30.
In the United States, music publishers collect mechanical royalties directly from recorded music
companies or, to minimize administrative burdens, via third-party administrators. The two major
administrators are the Harry Fox Agency, a nonexclusive licensing agent affiliated with the
National Music Publishers’ Association, and Music Reports, Inc. (MRI). After charging an
administrative fee, these agencies distribute the mechanical royalties to the publishers, who in
turn split them with the songwriters.
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Musical Work Public Performance Royalties
Depending on who collects public performance royalties on behalf of publishers and songwriters,
the rates are either subject to oversight by the federal district courts in New York City or are
based on marketplace negotiations between the publishers and licensees.
Congress granted songwriters the exclusive right to publicly perform their works in 1897.45 While
this right represented a way for copyright owners to profit from their musical works, the sheer
number and fleeting nature of public performances made it impossible for copyright owners to
individually negotiate with each user for every use, or detect every case of infringement.46
Performance rights organizations (PROs) address the logistical issue of how to license and collect
payment for the public performance of musical works in a wide range of settings.47 The American
Society of Composers, Authors and Publishers (ASCAP), was formed in 1914, the Society of
European Stage Authors and Composers (SESAC) was founded in 1930, Broadcast Music, Inc.
(BMI) was founded in 1939, and Global Music Rights (GMR) was established in 2013. After
charging an administrative fee, the PROs split the public performance royalties among the
publishers and songwriters.
In contrast to the mechanical right, the public performance of musical works is not bound by
compulsory licensing under the Copyright Act. As described in “ASCAP and BMI Consent
Decree Reviews,” ASCAP and BMI are subject to government antitrust regulation through long-
standing consent decrees.
Entities that “publicly perform” a musical work—including terrestrial, satellite and Internet radio
stations, broadcast and cable television stations, online services, bars, restaurants, and live
performance venues—may obtain a license from a songwriter or publisher through a PRO.48 Most
commonly, licensees obtain a blanket license, which allows the licensee to publicly perform any
of the musical works in a PRO’s catalog for a flat fee or a percentage of total revenues. Broadcast
radio stations obtain blanket licenses from songwriters or publishers, which are negotiated on
their behalf by the Radio Music License Committee (RMLC).49 In 2012 RMLC reached
settlements with ASCAP and BMI on the amounts that radio stations pay to these two PROS for
the use of music through the end of 2016.50 The settlements encompass the stations’ traditional
45 Act of March 3, 1897, Ch. 392, 29 Stat. 694. See also 2015 U.S. Copyright Office Report, p. 17. Congress declined
to grant exclusive performance rights when it first amended copyright law to expressly protect musical works in 1831,
because it considered performances as promotional vehicles to spur sales of sheet music. 2015 U.S. Copyright Office
Report, p. 17.
46 Broadcast Music, Inc., et al. v. Columbia Broadcasting System, Inc., et al., 441 U.S. 1, 4-5 (1979); see also Alden-
Rochelle, Inc., et al. v. American Society of Composers, Authors and Publishers et al., F. Supp. 888, 891 (S.D.N.Y.
1948).
47 Ibid. and 2015 Copyright Office Report, p. 20.
48 2015 Copyright Office Report, p. 33.
49 Radio Music License Committee, Our Mission, http://www.radiomlc.org/Homepage/4779186.
50 Radio Music License Committee, “Federal Court Approves Radio Industry Settlement with ASCAP,” press release,
January 27, 2012, http://www.radiomlc.org/pages/4795848.php; Radio Music License Committee, “Federal Court
Approves Radio Industry Settlement with BMI,” press release, August 12, 2012, http://www.radiomlc.org/pages/
6282052.php. See also David Oxenford, “Details of the ASCAP Settlement with the Radio Industry—What Will Your
Station Pay?,” Broadcast Law Blog, January 30, 2012, http://www.broadcastlawblog.com/2012/01/articles/details-of-
the-ascap-settlement-with-the-radio-industry-what-will-your-station-pay/.
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radio broadcast service as well as their non-interactive streaming services that compete with
Pandora and Apple’s iTunes Radio.
The U.S. District Court for the Southern District of New York, acting as the rate court, approved
of these settlements. After Pandora filed a motion claiming that the ASCAP settlement with the
RMLC violated the terms of the ASCAP antitrust consent decree, a judge ruled, and in May 2015
the U.S. Court of Appeals for the Second Circuit affirmed, that Pandora should pay ASCAP
1.85% of its revenues.51 This is less than the 3% of revenues ASCAP originally demanded from
Pandora, but more than the 1.7% paid by radio broadcast groups and by online streaming services
operated by broadcast radio groups. There are now several such services (see Table 2). Pandora
has filed an application with the Federal Communications Commission to purchase broadcast
radio station KSMZ-FM in Rapid City, SD, so it, too, could be covered by the terms of the RMLC
settlements.52
Table 2. Online Radio Services Owned/Operated by
Selected Broadcast Radio Groups
Broadcast Radio
Stations Owned and
Broadcast Radio Group
Operated
Online Radio Service
Notes
iHeartMedia, Inc.
781
iHeart Radio
Free ad-supported service.
Offers live streaming of
broadcast radio stations and
personalized stations, based
on artist or genre.
CBS Corporation
113
Last.fm
Free ad-supported service.
Offers live streaming of
broadcast radio stations and
personalized stations, based
on artist or genre.
Cumulus Media Inc.
416
Rdio (partial ownership
Free for up to six months.
stake)
Thereafter $4.99 or $9.99
per month, depending on
whether mobile included.
Univision Communications
60
Uforia Musica
Free ad-supported service.
Inc.
Offers live streaming of
broadcast radio stations and
personalized stations, based
on artist or genre.
Source: SNL Kagan; Robin Flynn et al., Economics of Internet Music and Radio, 2015 Edition.
Current law, 17 U.S.C. §114(i), prohibits judges or other government officials from considering
rates paid to record labels and artists for public performances of sound recordings when setting or
adjusting public performance rates payable to music publishers and songwriters. This provision
was included when Congress created a public performance right for sound recordings with the
51 Ben Sisario, “Pandora Wins a Battle, but the War Over Royalties Continues,” New York Times, March 20, 2014,
http://www.nytimes.com/2014/03/21/business/media/pandora-wins-a-battle-but-the-war-over-royalties-continues.html?
_r=0. Pandora Media, Inc. v. American Society of Composers, Authors and Publishers et al, Nos. 14-1158, 14-1161,
14-1246 (2nd Cir. May 6, 2015).
52 Pandora is involved in a similar suit with BMI.
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1995 enactment of the DPRSRA. This provision creates a disparity between the rates interactive
services pay music publishers for performance rights, which cannot be tied to the prices they pay
record labels, and the rates they pay music publishers for mechanical rights, which are tied to the
rates they pay record labels.
The Songwriter Equity Act of 2015 (S. 662, H.R. 1283) would repeal this provision. Songwriters,
publishers, and the Copyright Office support such a change; streaming music services oppose
repeal. Parties on both sides predict that the legislation would increase performance rates for
musical works to make them more commensurate with rates paid for sound recordings.
Figure 2 represents how the different sources of royalties contribute to music publishers’
revenues.53
Figure 2. Breakout of Music Publishers’ U.S. Revenues, by Type of Royalty
Source: IBISWORLD.com, 2014 IBISWorld Music Publishing Report.
Note: Synchronization (often referred to as “synch”) refers to the use of music incorporated in audiovisual
works, such as movies, television programs, and video games.
Record Labels and Recording Artists
Reproduction and Distribution Licenses
Congress did not recognize artists’ sound recordings as a distinct class of copyrighted works until
1971, when it adopted the 1971 Sound Recording Amendment.54 This law granted sound
53 The National Music Publishers Association (NMPA) reported that in 2013 its member organizations received $2.2
billion in U.S. revenues. It estimated the following contributions from each type of royalty: performance represented
52%, mechanical licenses represented 23%, synchronization royalties from audiovisual works represented 20%, and all
other uses collectively represented 5% of annual revenues. National Music Publishers Association, “U.S. Music
Publishing Industry Valued at $2.2 Billion,” press release, June 11, 2014, https://www.nmpa.org/media/
showrelease.asp?id=233.
54 P.L. 92-140. See also Maria A. Pallante, Register of Copyrights, Federal Copyright Protection for Pre-1972 Sound
(continued...)
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recordings a reproduction right analogous to that provided for other works of authorship.55 The
effective date of the sound recording amendment was February 15, 1972, four months after
Congress passed it. Today, copyright protection of pre-1972 sound recordings remains governed
by a patchwork of state and common law. The Fair Play Fair Pay Act of 2015, H.R. 1733, would
include pre-1972 sound recordings within the jurisdiction of federal copyright law.
Recognizing that non-interactive digital services (including Sirius XM satellite service, Music
Choice, and Pandora) may need to make ephemeral server reproductions of sound recordings, in
1998 Congress established a related license under Section 112 of the Copyright Act specifically to
authorize the creation of these copies. The rules governing licenses for temporary reproductions
of sound recordings are somewhat analogous to those governing incidental reproduction and
distribution of musical works described in Section 115(c)(3)(C)(i).56 The rates and terms of the
Section 112 license are established by the CRB. Through SoundExchange, described below in
“Sound Recording Public Performance Royalties,” sound recording owners receive Section 112
fees. Recording artists, however, do not.57
With the limited exception described above, Congress did not empower the government to
oversee the rates that record labels and artists may charge for the mechanical rights to sound
recordings (i.e., to manufacture and distribute CDs, sell digital downloads of music and ringtones,
or operate an interactive music service). Instead, these rates are subject to private negotiations in
the marketplace.
Sound Recording Public Performance Royalties
Non-interactive Services
Until 1995, the Copyright Act did not afford public performance rights to record labels and
recording artists for their sound recordings. Record labels and artists earned income from the
reproduction and distribution royalties based on retail sales of physical products such as CDs.
With the inception and public use of the Internet in the early 1990s, the recording industry
became concerned that existing copyright law was insufficient to protect the industry from music
piracy.58 Beginning with the passage of DPRSRA in 1995, Congress has moved gradually in the
direction of granting record labels and artists public performance rights and allowing them to sell
such rights at market rates.59
(...continued)
Recordings, U.S. Copyright Office, 2011, http://copyright.gov/docs/sound/ (2011 Copyright Office Report).
55 2011 Copyright Office Report.
56 17 U.S.C. §112(e)(1); U.S. Congress, House Committee on the Judiciary, Digital Millennium Copyright Act,
committee print, 106th Cong., 2nd sess., October 8, 1998, H.Rept. 105-796, pp. 89-90.
57 Copyright Office, Library of Congress, “Review of Copyright Royalty Judges Determination, Notice,” 73 Federal
Register 9143, 9146, February 19, 2008.
58 Arista Records, LLC v. Launch Media, Inc., 578 F.3d 148, 153 (2d Cir. 2009), cert. denied, 559 U.S. 929 (2010).
(“Launch Media”).
59 Jeffrey A. Eisenach, “The Sound Recording Performance Right at a Crossroads: Will Market Rates Prevail?,”
CommLaw Conspectus, vol. 22, no. 1 (2014), pp. 1-2.
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With the DPRSRA, Congress granted record labels and recording artists an exclusive public
performance right for their sound recordings, but limited this right to digital audio transmissions.
Congress made non-interactive subscription services, specifically satellite radio and subscription
music, eligible for compulsory licensing under Section 114.60 The CRB applies the same four-
factor policy-oriented standards described in Section 801(b)(1) of the 1976 Copyright Act that
have applied to music publishers’ licensing of mechanical rights.
With the enactment of the Digital Millennium Copyright Act (DMCA) in 1998, Congress
expanded the statutory licensing provisions in Section 114 to include non-interactive online radio
services.61 It then set up a bifurcated system of rate-setting standards for the CRB:62
• Services that existed as of July 31, 1998, prior to the enactment of the DMCA
(i.e., Sirius-XM satellite service as well as the Music Choice and Muzak
subscription services), remained subject to the Section 801(b)(1) standard.
• Internet radio and other digital music services (including advertising-supported
music streaming services) that entered the music marketplace after July 31, 1998,
are subject to rates and terms “that most clearly represent the rates and terms that
would have been negotiated in the marketplace between a willing buyer and a
willing seller.”63
SoundExchange also administers the Section 114 fees that non-interactive digital services pay
record labels for public performance rights. The Copyright Act specifies how record labels and
recording artists divide the public performances they receive from non-interactive digital music
services via SoundExchange.
Interactive Services
The DPRSRA enabled owners of sound recordings (i.e., record labels, and/or artists) to negotiate
directly with interactive digital transmission services for public performance rights at
marketplace-determined rates. The term “interactive service” covers only services in which an
individual can arrange for the transmission or retransmission of a specific recording to an
individual.64
The Senate Judiciary Committee in 1995 explained that
[C]ertain types of subscription and interactive audio services might adversely affect sales of
sound recordings and erode copyright owners’ ability to control and be paid for use of their
work.... Of all of the new forms of digital transmission services, interactive services are the
most likely to have a significant impact on traditional record sales, and therefore pose the
60 17 U.S.C. §114(d)(2). 2015 Copyright Office Report, p. 49.
61 P.L. 105-304.
62 Eisenach states that “the 801(b) standard arguably grants licensees a de facto right to perpetual profitability, allowing
licensees to argue that they and their business models have a right to be protected from ‘disruption.’” Eisenach, p. 4.
63 17 U.S.C. §114(f)(2)(B).
64 U.S. Congress, Senate Committee on the Judiciary, Digital Performance Right in Sound Recordings Act of 1995,
committee print, 104th Cong., 1st sess., August 4, 1995, S.Rept. 104-128, p. 18.
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greatest threat to the livelihoods of those whose income depends on revenues derived from
traditional record sales.65
Thus, while Taylor Swift and her record label have the legal right to withdraw her catalog from an
interactive service such as Spotify, they cannot, pursuant to the compulsory license exemptions
set forth in Section 114, refuse to negotiate with non-interactive services such as Pandora.
Broadcast Radio Exception
Congress does not require broadcast radio stations to obtain public performance rights from
owners of sound recordings. The Senate Judiciary Committee explained in 1995 that it was
attempting to strike a balance among many interested parties. Specifically, the committee stated
the following:
the sale of many sound recordings and the careers of many performers have benefitted
considerably from airplay and other promotional activities provided by ... free over-the-air
broadcast ... [and] the radio industry has grown and prospered with the availability and use of
prerecorded music. This legislation should do nothing to change or jeopardize [these
industries’] mutually beneficial relationship.66
The Senate Judiciary Committee further distinguished broadcast radio from other services by
stating that “[F]ree over-the-air broadcasts ... provide a mix of entertainment and non-
entertainment programming and other public interest activities to local communities to fulfill a
condition of the broadcasters’ licenses.”67
In addition to maintaining that artists continue to benefit from the promotional value of broadcast
radio airplay, broadcasters assert that a performance royalty fee would hurt them financially, and
effectively force them to subsidize the recording industry.68 Representatives of recording artists
and record labels argue that they are the ones subsidizing the broadcast radio industry, because
they are prohibited from exercising their property rights.69 A 2010 report published by the
Government Accountability Office “found the relationship between radio airplay and music sales
to be unclear.”70 Pandora claims that its advertising-supported service is similar to broadcast radio
service, and that the requirement that it pay record labels and artists for each “stream,” while
services owned by broadcast radio operators do not, represents an unfair legal disparity.71
Members of the band Pink Floyd counter that in order to increase parity with broadcast radio, it
would be more beneficial to artists if Congress were to require broadcast radio stations to pay
65 Ibid., pp. 14-16.
66 U.S. Congress, Senate Committee on the Judiciary, Digital Performance Right in Sound Recordings Act of 1995,
committee print, 104th Cong., 1st sess., August 4, 1995, S.Rept. 104-128, pp. 14-15.
67 Ibid., p. 15.
68 National Association of Broadcasters, A Performance Tax Puts Local Jobs at Risk, http://nab.org/advocacy/
issue.asp?id=1889&issueid=1002.
69 Music First, The Truth About Performance Rights, http://musicfirstcoalition.org/performancerights.
70 U.S. Government Accountability Office, The Proposed Performance Rights Act Would Result in Additional Costs
for Broadcast Radio Stations and Additional Revenue for Record Companies, Musicians, and Performers, 10-826,
August 2010, p. 12, http://www.gao.gov/assets/310/308569.pdf.
71 Tim Westergren, founder, Pandora, Pandora and Royalties (blog), June 26, 2013, http://blog.pandora.com/2013/06/
26/pandora-and-royalties/.
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royalties.72 The Copyright Office supports such a requirement, arguing that adding this
requirement would enable U.S. artists and record labels to collect performance royalties from
foreign radio broadcasts. The Copyright Office states that most countries condition payment of
such royalties on reciprocity. The National Association of Broadcasters counters that an
expansion of performance rights will be insufficient to invoke copyright reciprocity from other
nations.73
For information about bills that would address this exception, see “Bills Introduced in the 114th
Congress.”
SoundExchange
Congress intended the rate-setting process to permit voluntary industry agreements when
possible. Congress provided antitrust exemptions to statutory licensees and copyright owners of
sound recordings so that they could designate common agents to collectively negotiate with
digital radio services and agree upon royalty rates for public performance rights.74 The Recording
Industry Association of America (RIAA) established SoundExchange as a designated common
agent for the record labels in 2000 and spun it off in 2003 as an independent entity.
SoundExchange is the only organization authorized by the CRB to fulfill this role for the 2011-
2015 license period.75
The Copyright Act does not include record producers in the statutorily defined split of royalties
for public performances of sound recordings by digital non-interactive services. As a result,
record producers must rely on contracts with one of the parties specified in the statute, often the
featured recording artist, in order to receive royalties from digital performances. The Allocation
for Music Producers Act (AMP Act), H.R. 1457, would grant producers the statutory right to seek
payment of their royalties via SoundExchange when they have a letter of direction from a
featured artist.
In general, the CRB has adopted “per‐performance” rates for public performances of sound
recordings for digital music services, rather than the percentage‐of‐revenue rates typically
charged by PROs to license public performances of musical works.76 That per‐stream approach
has proven controversial.77 After the CRB’s “Webcasting II” decision in 2007, a number of online
streaming services and radio broadcasters complained that the per‐performance rates were
unsustainable. These concerns led Congress to pass legislation giving SoundExchange the
72 Roger Waters, David Gilmour, and Nick Mason, “Pink Floyd: Pandora’s Internet Radio Ripoff,” USA Today, June
25, 2013, http://www.usatoday.com/story/opinion/2013/06/23/pink-floyd-royalties-pandora-column/2447445/.
73 2015 Copyright Office Report, pp. 89-90.
74 17 U.S.C. §112(e)(2), 114(e)(1), 115(c)(3)(B).
75 37 C.F.R. §380.11.
76 “A key reason for rejecting the percentage-of-revenue approach was the Panel’s determination that a per performance
fee is directly tied to the right being licensed. The Panel also found that it was difficult to establish the proper
percentage because business models varied widely in the industry, such that some services made extensive music
offerings while others made minimal use of the sound recordings. The final reason and perhaps the most critical one for
rejecting this model was the fact that many webcasters generate little revenue under their current business models. As
the Panel noted, copyright owners should not be ‘forced to allow extensive use of their property with little or no
compensation.’” Library of Congress, Copyright Office, “Determination of Reasonable Rates, Final Rule and Order,”
67 Federal Register 45240, 45249, July 8, 2002.
77 2015 Copyright Office Report, pp. 51-52.
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authority to negotiate and agree to alternative royalty schemes that could be binding on all
copyright owners and others in lieu of the CRB‐set rates.78 Its authority to do this, however,
expires at the end of 2015, pursuant to 17 U.S.C. §114(f)(5)(A). In April 2015 the CRB began the
hearing phase of its proceeding to set the royalty rates paid by non-interactive digital music
services to SoundExchange for the years 2016-2020.79 It is to rule by the end of 2015.80
In the wake of Congress’s actions, SoundExchange reached agreements with several digital music
services. For example, in 2009, SoundExchange negotiated rates with Pandora. Under that
agreement, Pandora agreed to pay the greater of 25% of gross revenues, or $0.00140 per stream
per month. Had Pandora not reached such an agreement, it would have paid the CRB default rate
fee of $0.00023 per stream per month.
Table 3 describes how public performance rates vary, depending on the type of music service,
when it began operating, and whether it opted to reach agreements pursuant to the Webcaster
Settlement Act of 2008, P.L. 110-435, and the Webcaster Settlement Act of 2009, P.L. 111-36,
(WSAs) in lieu of rates set by the CRB. 81 The rates in the agreements negotiated pursuant to the
WSAs include rights to ephemeral recordings, as described in Section 112, as well as public
performance rights for digital services described in Section 117 of the Copyright Act. In 2014, the
CRB, determined, after the U.S. Court of Appeals ordered it to reconsider its initial decision, that
rights to ephemeral recordings should be bundled with the Section 114 royalties and deemed to
5% of the bundled payments.82 Pursuant to several agreements, SoundExchange takes the
payments, allocates them to songs according to how often each song is played, and then pays the
featured artists and copyright holders of the recordings. The Copyright Office has no
responsibility for administering the rates and terms of these agreements.
78 Webcaster Settlement Act of 2008, P.L. 110-435. See also CRS Report RL34020, Statutory Royalty Rates for Digital
Performance of Sound Recordings: Decision of the Copyright Royalty Board, by Brian T. Yeh, 2015 Copyright Office
Report, pp. 47, 52, and Copyhype, November 12, 2012, http://www.copyhype.com/2012/11/a-brief-history-of-
webcaster-royalties/.
79 David Oxenford, “Copyright Royalty Board Begins Hearings on Webcasting Royalty Rates for 2016-2020—When
Will We See a Decision?,” Broadcast Law Blog, April 29, 2015, http://www.broadcastlawblog.com/2015/04/articles/
copyright-royalty-board-begins-hearings-on-webcasting-royalty-rates-for-201-2020-when-will-we-see-a-decision/.
80 U.S. Copyright Office, “Digital Performance Right in Sound Recordings and Ephemeral Recordings,” 79 Federal
Register 214, November 5, 2014. David Oxenford, “Webcasting Rate Proposals for 2016-2020 Now Public—What
Will the Copyright Royalty Board Be Considering in Setting Royalty Rates for Internet Radio,” Broadcast Law Blog,
October 13, 2014, http://www.broadcastlawblog.com/2014/10/articles/webcasting-rate-proposals-for-2016-2020-now-
public-what-will-the-copyright-royalty-board-be-considering-in-setting-royalty-rates-for-internet-radio/.
81 The Webcaster Settlement Act of 2008 provided limited statutory authority for SoundExchange to negotiate and
enter into alternative royalty fee agreements within an allotted time frame. The Webcaster Settlement Act of 2009
allowed webcasters who had not reached an agreement with SoundExchange another opportunity to do so. U.S.
Congress, House Committee on the Judiciary, Webcaster Settlement Act of 2009, committee print, 111th Cong., 1st sess.,
June 8, 2009, H.Prt. 111-139 (Washington: GPO, 2009), p. 3.
82 Library of Congress, Copyright Royalty Board, “Determination of Royalty Rates for Digital Performance Right in
Sound Recordings and Ephemeral Recordings, Final Rule and Order” 79 Federal Register 23102, April 25, 2014.
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Table 3. Royalty Rates Payable to Record Labels for Public Performance Rights
Applies to Selected Digital Non-Interactive Audio Services
Media Description
Amount
Notes
Preexisting subscription service Annual minimum fee: $500
$0.0023 per stream per
Default rate set by CRB based on 17
as of July 31, 1998 (Music
per station or channel;
month
U.S.C. §801(b)(1) factors. Codified
Choice, Muzak)
maximum of $50,000 per
in 37 C.F.R. §380 Subpart A.
year.
Preexisting satellite digital
Annual minimum fee: $500
$0.0024 per stream per
Pursuant to WSA agreement. Sirius
audio radio service as of July
per station or channel;
month
XM has opted out of the CRB’s
31, 1998 (Sirius-XM)
maximum of $50,000 per
§801(b)(1) rate standard and
year.
reached a separate agreement with
SoundExchange, which is effective
through 2015.a Not codified in
C.F.R.
Licensed AM or FM broadcast
Annual minimum fee: $500
$0.0025 per stream per
Pursuant to WSA agreement, NAB
radio stations that simulcast
per station or channel;
month
has opted out of the CRB’s willing
their terrestrial programming
maximum of $50,000 per
buyer, willing sel er rate standard
(e.g., via Radio.com; or IHeart
year.
and reached a separate agreement
Radio Live radio service) or
with SoundExchange, which is
channels broadcast with HD
effective through 2015.b Codified in
radio digital technology )
37 C.F.R. §380 Subpart B.
Non-subscription services
Annual minimum fee: $500
$0.0023 per stream per
Default rate for non-interactive
whose revenues are earned
per station or channel;
month
radio services subject to rates set by
primarily through webcasting
maximum of $50,000 per
CRB, based on willing buyer/willing
businesses (IHeart Radioc)
year.
seller standard. Codified in 37 C.F.R.
380 Subpart A.
Non-subscription pureplay
Nonsubscription services:
Pursuant to WSA agreement,
webcasters whose revenues
a greater of 25% of gross
Pandora has opted out of the CRB’s
are earned primarily through
revenues, or $0.00140 per
willing buyer/willing seller rate
their webcasting business
stream.
standard and reached a separate
(Pandora)
agreement with SoundExchange,
which is effective through 2015.d
Not codified in C.F.R.
Source: SoundExchange, http://www.soundexchange.com/service-provider/rates/,
http://www.soundexchange.com/artist-copyright-owner/digital-royalties/, http://www.soundexchange.com/
service-provider/commercial-webcaster/; Radio.com, Listen Live, http://radio.com/ http://www.iheart.com/live/
country/US/city/new-york-ny-159/; Kevin Goldberg, “NAB/SoundExchange Agreement: Annual Webcaster
Wake-Up Cal ! SoundExchange Reports and Payments Due Soon,” CommLawBlog, Fletcher Heald & Hildreth,
January 22, 2015; John Vilasensor, Digital Music Broadcast Royalties: the Case for a Level Playing Field, Center for
Technology at Brookings, Paper Series, August 2012, http://www.brookings.edu/~/media/research/files/papers/
2012/8/07%20music%20royalties%20technology%20villasenor/cti_19_villasenor.pdf; John Timmer, “Pandora
Lives! SoundExchange Cuts Deal on Webcasting Rates,” Ars Technica, July 7, 2009, http://arstechnica.com/tech-
policy/2009/07/07/soundexchange-cuts-deal-on-music-webcasting-rates/.
a. Library of Congress, Copyright Office, “Notification of Agreements Under the Webcaster Settlement Act
of 2009,” 74 Federal Register 40614, August 12, 2009, Appendix A (Agreement with Sirius XM Radio).
b. Library of Congress, Copyright Office, “Notification of Agreements Under the Webcaster Settlement Act
of 2008,” 74 Federal Register 9293, Appendix B, March 3, 2009.
c. IHeartMedia, Inc., SEC Form 10-K, for the fiscal year ended December 31, 2014, p. 14.
d. Pandora Media, Inc., SEC Form 10-K, for the fiscal year ended December 31, 2014, pp. 6-7. Library of
Congress, Copyright Office, “Notification of Agreements Under the Webcaster Settlement Act of 2009,”
74 Federal Register 34796, Appendix A, July 9, 2009.
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The Copyright Act specifies how royalties collected under Section 114 are to be distributed: 50%
goes to the copyright owner of the sound recording, typically a record label; 45% goes to the
featured recording artist or artists; 2½% goes to an agent representing nonfeatured musicians who
perform on sound recordings; and 2½% goes to an agent representing non-featured vocalists who
perform on sound recordings.83 Prior to distributing royalty payments, SoundExchange deducts
costs incurred in carrying out its responsibilities.84 In 2014, SoundExchange collected a total of
$773 million in royalties, compared with $20 million in royalties in 2005 and $462 million in
2012.85
Industry Developments and Issues
“Interactive” Versus “Non-Interactive” Music Services
The distinction between interactive and non-interactive services has been a matter of debate.86 For
the purposes of defining the process by which owners of sound recordings can set rates for public
performance rights, 17 U.S.C. Section 114 provides that an interactive service is one that enables
a member of the public to receive either “a transmission of a program specially created for the
recipient,” or, “on request, a transmission of a particular sound recording, whether or not as part
of a program, which is selected by or on behalf of the recipient.”87 As discussed in “Reproduction
and Distribution Licenses (Mechanical Licenses),” 17 U.S.C. Section 115 does not distinguish
between interactive and non-interactive services for the purposes of specifying when a digital
service must obtain mechanical rights from music publishers. The CRB has adopted these
distinctions in setting or approving rates for mechanical licenses.88
In order to qualify as a “non-interactive” digital music service eligible for compulsory licenses of
sound recording licenses at rates set by the CRB, the services must limit the features they offer
consumers, pursuant to the Copyright Act. For example, these services are prohibited from
announcing in advance when they will play a specific song, album, or artist.89 Another example is
the “sound recording performance complement,” which limits the number of tracks from a single
album or by a particular artist that a service may play during a three‐hour period.90
83 17 U.S.C. §114(g)(2). See also SoundExchange, Artist & Copyright Owner: About Digital Royalties,
http://www.soundexchange.com/artist-copyright-owner/digital-royalties/.
84 17 U.S.C. §114(g)(3).
85 SoundExchange, SoundExchange Annual Report for 2014 Provided Pursuant to 37 C.F.R. §370.5(c), March 31,
2015, http://www.soundexchange.com/wp-content/uploads/2015/03/2014-SoundExchange-Fiscal-Report-_FINAL-
REPORT_ISSUED_3-31-2015.pdf; Digital Radio Report, Q4 2014,
http://digitalradioreport2014q4.soundexchange.com/.
86 2015 Copyright Office Report, pp. 48-49.
87 17 U.S.C. §114(j)(7).
88 The Copyright Office has stated, however, that it “would not dispute a finding [from the CRB] that non-interactive
and interactive streams have different economic value, or even that a rate of zero might be appropriate for [digital
phonorecord deliveries] made in the course of non-interactive streams.” Library of Congress, Copyright Royalty Board,
“Adjustment of Determination of Compulsory License Rates for Mechanical and Digital Phonorecords,” 78 Federal
Register 63798, 63941, n.14, November 13, 2013.
89 17 U.S.C. §114(d)(2)(B)-(C).
90 17 U.S.C. §114(d)(2)(B)(i), (d)(2)(C)(i), (j)(13).
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In 2009, the U.S. Court of Appeals for the Second Circuit ruled that a custom radio service—one
that relies on user feedback to play a personalized selection of songs that are within a particular
genre or similar to a particular song or artist the user selects—is not an “interactive” service.91
Noting that Congress’s original intent in making the distinction was to protect sound recording
copyright holders from cannibalization of their record sales, the court’s decision rested on the
following analysis:
If a user has sufficient control over an interactive service such that she can predict the songs
she will hear, much as she would if she owned the music herself and could play each song at
will, she will have no need to purchase the music she wishes to hear. Therefore, part and
parcel of the concern about a diminution in record sales is the concern that an interactive
service provides a degree of predictability—based on choices made by the user—that
approximates the predictability the music listener seeks when purchasing music.92
The court noted that the LAUNCHcast online radio service offered by the defendant, Launch
Media, Inc., which at the time was owned by Yahoo!, Inc., created unique playlists for each of its
users.93 Nevertheless, the court reasoned that uniquely created playlists do not ensure
predictability. Therefore, the court determined, LAUNCHcast was a non-interactive service.94
Free Versus Subscription Services and Sales of Music Downloads
Following the Launch Media decision, personalized music streaming services including Pandora
and iHeartRadio, obtained statutory licenses as non-interactive services for their public
performances of sound recordings.95 The CRB‐established rates do not currently distinguish
between such customized services and other services that simply transmit undifferentiated,
radio‐style programming over the Internet.
Spotify’s services, on the other hand, allow users access to specific albums, songs, and artists on
demand. For no charge, consumers can have limited access to songs if they use the site on their
personal computers and see or hear an advertisement every few songs. In exchange for paying a
monthly fee of about $10 per month, users can listen to songs without advertisement interruption,
use Spotify on mobile devices as well as personal computers, or listen to music offline.
Artists and record labels are debating whether interactive, on-demand advertising-supported
services such as Spotify will help the music industry by stemming online music piracy96 or hurt
the industry by reducing paid downloads of songs and albums.97 Spotify asserts that users of its
91 Arista Records, LLC v. Launch Media, Inc., 578 F.3d 148, 153 (2d Cir. 2009), cert. denied, 559 U.S. 929 (2010).
92 Ibid., p. 164.
93 LAUNCHcast subsequently ceased operations.
94 Ibid., pp. 161-162, 164. “LAUNCHcast listeners do not even enjoy the limited predictability that once graced the
AM airwaves on weekends in America when ‘special requests’ represented love-struck adolescents’ attempts to
communicate their feelings to ‘that special friend.’”
95 2015 Copyright Office Report, p. 164. Apple’s iTunes Radio service, a non-interactive digital streaming service that
is similar to Pandora, has opted to negotiate directly with record labels for public performance rights in lieu of
obtaining the statutory license. Glenn Peoples, “SoundExchange Financials Show Fewer Unclaimed Royalites,
Persistent Data Problems,” Billboard, December 23, 2014, https://www.billboard.com/articles/business/6415147/
soundexchange-fewer-unclaimed-royalties-data-problems.
96 Seabrook, “Revenue Streams.”
97 Matthew Garraham, Murad Ahmed, and Robert Cookson, “Universal Takes on Spotify Freemium Model,” Financial
(continued...)
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free service tier subsequently become paying subscribers, thereby doubling the amount they pay
for music from about $5 per month (the average amount they spend on downloads) to $9.99 per
month.98 Reports indicate that the record labels are pressuring Spotify to reduce the number of
offerings on its free service.99
The songwriter and artist Jay Z operates, among other divisions, a record label and music
publishing company through his company, Roc Nation. On March 30, 2015, he announced,
together with 15 other musicians, the launch of a new music subscription service called Tidal.100
Tidal offers two subscription levels: $9.99 per month for standard music quality and $19.99 per
month for music with a higher-quality sound. Artists on Tidal will offer windows of limited
exclusive access to their music. Tidal has not revealed specifics about how the service will pay its
owners or participating artists, except that it will pay more to artists than free advertising-
supported services.101
Division of Royalty Payments
Noncash types of consideration may be involved as the price interactive services pay for access to
music. For example, the major labels acquired a reported combined 18% equity stake in Spotify
in a transaction that reportedly hinged on their willingness to grant Spotify rights to use their
sound recordings on its service.102 The record labels have also reportedly bought minority stakes
in the new music streaming service Tidal.103
As described in “Reproduction and Distribution Licenses (Mechanical Licenses),” the rates that
interactive services pay are tied to the rates that the services pay record labels for mechanical
rights, which are negotiated in the free market. This means that if a record label’s deal includes an
equity stake in an interactive digital music service provider or a guaranteed allotment of
advertising revenues, those items are assigned a value when estimating the total cost, thereby
enabling music publishers to participate in such deals when negotiating for mechanical
royalties.104
(...continued)
Times, March 20, 2015, http://www.ft.com/cms/s/0/5645cf6c-ce73-11e4-900c-00144feab7de.html#axzz3WkcKStxq.
98 Spotify, Spotify Explained: How is Spotify Contributing to the Music Business?, http://www.spotifyartists.com/
spotify-explained/#how-is-spotify-contributing-to-the-music-business.
99 Tim Ingham, “Lily Allen: Spotify is Not the Enemy—Tidal May Boost Pirate Sites,” Music Business Worldwide,
April 6, 2015, http://www.musicbusinessworldwide.com/lily-allen-spotify-is-not-the-enemy-tidal-may-boost-pirate-
sites/.
100 Andrew Flanagan and Andrew Hampp, “It’s Official: Jay Z’s Historic Tidal Launches with 16 Artist Stakeholders,”
Billboard, March 30, 2015, http://www.billboard.com/articles/news/6509498/jay-z-tidal-launch-artist-stakeholders.
101 Ben Sisario, “Jay Z Enters Streaming Music with Artist-Owned Service,” New York Times, March 31, 2015,
http://www.nytimes.com/2015/03/31/business/media/jay-z-reveals-plans-for-tidal-a-streaming-music-service.html.
102 Helienne Lindvall, “Behind the Music: The Real Reason Why the Major Labels Love Spotify,” The Guardian,
August 17, 2009, http://www.theguardian.com/music/musicblog/2009/aug/17/major-labels-spotify.
103 James Vincent, “Jay Z Takes on Spotify with $56 Million Purchase of Aspiro,” The Verge, January 30, 2015,
http://www.theverge.com/2015/1/30/7950317/Jay-z-buys-tidal-wimp-aspiro-to-take-on-spotify.
104 In the settlement reached with record labels and digital services for mechanical license rates, music publishers
reportedly negotiated a provision that enabled them to participate in equity stakes that record labels have with the
digital services. Ed Christman, “Copyright Royalty Board To Set Mechanical Royalty Rates For Digital Music
Services,” Billboard, April 10, 2012, http://www.billboard.com/biz/articles/news/publishing/1098005/copyright-
royalty-board-to-set-mechanical-royalty-rates-for.
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The Copyright Office recommends that Congress require greater transparency regarding how
such equity deals are reported to songwriters and artists, and how such deals impact royalty
distribution. Organizations representing songwriters and recording artists have expressed concern
that payments received by music publishers and record labels from digital music services as part
of direct deals are not being shared fairly, potentially resulting in lower payments than they might
receive under statutory licensing schemes.105
David McCandless and his staff at the firm Information is Beautiful provide an infographic
comparing how much artists earn online from various digital download services, free online
music services, and subscription music services.106 They note that
Unsigned “DIY” artists hold on to the majority of income when they sell their stuff online,
but signed artists get more marketing, which is a prerequisite to getting more plays on
streaming services. Spotify might pay less than Tidal each time your track is played, but
Spotify has many more users—making it more likely that someone will play your music in
the first place.
Policy Developments and Issues
ASCAP and BMI Consent Decree Reviews
Together, ASCAP and BMI, which operate on a not-for-profit basis, represent about 90% of songs
available for licensing in the United States.107 SESAC appears to have about a 5% share of songs,
but it may be higher. GMR, established in 2013, handles performance rights licensing for a select
group of songwriters. When ASCAP and BMI originally formed (in 1914 and 1939, respectively),
they acquired the exclusive right to negotiate on behalf of the members (music publishers and
songwriters), and forbade members from entering into direct licensing agreements.108 Both
offered only blanket licenses covering all of the songs in their respective catalogs.
In the 1930s, the Department of Justice (DOJ) Antitrust Division investigated ASCAP for
anticompetitive conduct—specifically, whether ASCAP’s licensing arrangements constituted
price‐fixing and/or unlawful tying. The government subsequently filed federal court actions,
arguing that the exclusive blanket license—as the only license offered at the time—was an
unlawful restraint of trade, and that ASCAP was charging arbitrary prices. It pursued antitrust
claims against BMI as well. The government settled with both ASCAP and BMI by entering into
consent decrees in 1941.
Since entering into these consent decrees, the DOJ has periodically reviewed their operation and
effectiveness. The ASCAP consent decree was last amended in 2001, and the BMI consent decree
was last amended in 1994.
105 2015 Copyright Office Report, pp. 128-130.
106 Information is Beautiful, Selling Out: How Much Do Artists Earn Online?, http://www.informationisbeautiful.net/
visualizations/how-much-do-music-artists-earn-online-2015-remix/.
107 2015 Copyright Office Report, p. 33.
108 The following is a summary of the 2015 Copyright Office Report, pp. 35-42.
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Although the ASCAP and BMI consent decrees are not identical, they share many of the same
features. Among those features are requirements that the Performance Rights Organization may
acquire only nonexclusive rights to license members’ public performance rights; must grant a
license to any user that applies on terms that do not discriminate against similarly situated
licensees; and must accept any songwriter or music publisher that applies to be a member, as long
as the writer or publisher meets certain minimum standards. ASCAP and BMI are also required to
offer alternative licenses to the blanket license. Prospective licensees that are unable to agree to a
royalty rate with ASCAP or BMI may seek a determination of a reasonable license fee from one
of two federal district court judges in the Southern District of New York.
Publishers allege that they are not receiving a fair share of the performance royalty revenues from
streaming services, pointing to a 12-to-one royalty ratio weighted toward record labels and artists
over songwriters and publishers.109 For example, Pandora reported that in 2014, it paid 44% of its
$921 million total revenues, or $405 million, to SoundExchange,110 while in 2013 ASCAP
collected $33 million from new media services.111 Beginning in 2011, publishers began
pressuring ASCAP and BMI to allow them to withdraw their digital rights from their blanket
licenses so that they could negotiate direct deals with digital services.112
In 2011 and 2013, respectively, ASCAP and BMI each responded by amending their rules to
allow music publishers the right to license their public performance rights for “new media”
uses—that is, both interactive and non-interactive digital streaming services, so they could
negotiate with digital stream services at market prices in lieu of rates subject to oversight by the
federal district court. As a result, Pandora—faced with a potential loss of PRO licensing authority
for the major publishers’ catalogs—proceeded to negotiate licenses directly with EMI Music
Publishing Ltd., Sony/ATV, and UMPG at rates that brought the publishers higher fees than they
were receiving under the PRO system.113 Pandora, however, challenged the publishers’ partial
withdrawal of rights before both the ASCAP and BMI rate courts in the Southern District of New
York. In each case—though applying slightly differing logic—the court ruled that under the terms
of the consent decrees, music publishers could not withdraw selected rights; rather, a publisher’s
song catalog must be either “all in” or “all out” of the PRO.114
The DOJ’s Antitrust Division announced in June 2014 that it would evaluate the consent decrees,
and has solicited and received extensive public comments on whether and how to modify the
consent decrees.115 Specifically, both ASCAP and BMI seek to modify the consent decrees to
permit partial grants of rights, to replace the current rate-setting process with expedited
arbitration, and to allow ASCAP and BMI to provide bundled licenses that include multiple rights
(e.g., mechanical as well as public performance in musical works). The DOJ has expressed its
109 In contrast to record labels, however, publishers receive performance royalties from radio broadcasts.
110 Pandora 2014 SEC Form 10-K, pp. 12, 39.
111 ASCAP Annual Report, p. 19.
112 Ed Christman, “Pandora vs. BMI’s Court Battle Reveals Long-Term Strategies, Licensing Arms,” Billboard,
February 17, 2015, http://www.billboard.com/articles/business/6473027/pandora-vs-bmg-strategies-licensing-aims.
113 Not long afterward, Sony/ATV bought EMI’s music catalog.
114 Pandora Media, Inc. related to United States of America, v. American Society of Composers, Authors, and
Publishers, 12 Civ. 8035 (S.D.N.Y. 2013), Pandora Media, Inc. related to United States of America, v. American
Society of Composers, Authors, and Publishers, No. 41 Civ. 1395 (S.D.N.Y. 2013); BMI v. Pandora Media, Inc., No.
13 Civ. 4037 (LLS) (S.D.N.Y. 2013).
115 The U.S. Department of Justice, Antitrust Consent Decree Review: American Society of Composers, Authors and
Publishers/Broadcast Music, Inc., http://www.justice.gov/atr/cases/ascap-bmi-decree-review.html.
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intent to “examine the operation and effectiveness of the Consent Decrees,” particularly in light
of the changes in the way music has been delivered and consumed.
Consumption Trends
Much has happened in the music industry between 1985, when the band Dire Straits released the
song “Money for Nothing,” about a blue-collar worker’s lament of the high pay of popular music
performers he saw on television,116 and 2015, when a new version of the song was available for
download in iTunes after premiering on the FOX television program Empire.117
After sales of physical media, including cassette tapes and vinyl records, dipped slightly to $9.6
billion (in 2013 dollars) in 1985 from $9.9 billion in 1984, the introduction of the compact disc
led to an increase in music sales to consumers, peaking at $20.2 billion (in 2013 dollars) in
1999.118 That same year, Napster, the pioneering file-sharing service, facilitated online piracy.
Since then, consumer spending on music has plummeted (see Figure 3).119
Figure 3. Trends in Consumer Spending on Music
Source: Recording Industry Association of America Shipment Database
Notes: Inflation adjustments based on U.S. Bureau of Labor Statistics Consumer Price Index. Figures do not
include consumer spending on live concerts.
116 Richard Buskin, “Classic Tracks: Dire Straits ‘Money for Nothing,’” Sound on Sound, May 2006,
http://www.soundonsound.com/sos/may06/articles/classictracks_0506.htm?print=yes.
117 Billboard Staff, “‘Empire’ Cast, ‘Money for Nothing,’ Feat. Jussie Smollett & Yazz: Exclusive Song Premier,”
Billboard, February 16, 2015, http://www.billboard.com/articles/news/6472989/empire-cast-money-for-nothing-feat-
jussie-smollett-yazz-exclusive-song.
118 For more information on the evolution of online music piracy, see Stephen Witt, “The Man Who Broke the Music
Business,” The New Yorker, April 26, 2015, http://www.newyorker.com/magazine/2015/04/27/the-man-who-broke-the-
music-business?mod=e2this+nightly&utm_term=0_4b29b52ce6-1f9f580384-248161753.
119 Seabrook, “Revenue Streams.”
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In the past 15 years, however, online radio listening has become increasingly prevalent. Research
firms Edison Research and Triton Digital estimate that about 119 million people, representing
44% of adults aged 12 or older, stream audio weekly, as of 2015, compared with just 2% in
2000.120 In addition, as of 2015, nearly two-thirds of all Internet users have used YouTube to
watch music videos or listen to music.121
U.S. Copyright Office Recommendations
In March 2013 Maria A. Pallante, the Register of Copyrights, delivered a lecture at Columbia
Law School and published an article in the Columbia Journal of Law & the Arts advocating that
Congress comprehensively review and revise U.S. copyright law.122 In April 2013 House
Judiciary Committee Chairman Bob Goodlatte announced that the Judiciary Committee would
conduct such a review.123
In February 2015 the Copyright Office published a report, Copyright and the Music Marketplace,
offering Congress a series of recommendations for changing copyright law in light of music
industry developments.124 Among its recommendations are the following:
• regulate musical works and sound recordings consistently
• extend the public performance right in sound recordings to broadcast radio
• include sound recordings made prior to February 15, 1972, in the federal
copyright regime, rather than a patchwork of state statutory and common law
• adopt a uniform market-based rate-setting standard for all government rates (i.e.,
eliminate the Section 801(b)(1) four factors test)
• migrate all rate-setting to the CRB (including rates payable to the ASCAP and
BMI PROs, which are currently set by the New York federal district court)
• permit music publishers to opt out of PROs when negotiating with interactive
music services for public performance rights, just as record labels are able to do
• encourage greater transparency in the reporting and payment of songwriters’ and
artists’ share of royalties paid to music publishers and record labels, especially in
the context of any direct deals negotiated by publishers and record labels with
licensees
120 Edison Research, The Infinite Dial (Blog—Latest News), March 4, 2015, http://www.edisonresearch.com/the-
infinite-dial-2015/.
121 YouTube has a licensing agreement with the website Vevo to stream music videos.
122 Maria A. Pallante, “The Next Great Copyright Act,” Columbia Journal of Law & the Arts, vol. 36, no. 3 (Winter
2013), p. 315, http://lawandarts.org/articles/the-next-great-copyright-act/.
123 House Judiciary Committee, “Chairman Goodlatte Announces Comprehensive Review of Copyright Law,” press
release, April 23, 2013, http://judiciary.house.gov/index.cfm/2013/4/
chairmangoodlatteannouncescomprehensivereviewofcopyrightlaw.
124 2015 Copyright Office Report.
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• allow music publishers to bundle the licensing of mechanical and public
performance rights
• consider permitting SoundExchange to collect royalty payments on behalf of
record producers (the office stated that it would like to hear more from recording
artists about this proposal)125
Bills Introduced in the 114th Congress
Legislators have introduced several measures related to the music industry.
In February 2015 Senators John Barrasso and Heidi Heitkamp introduced S.Con.Res. 4, and
Representative Michael Conaway, along with dozens of cosponsors, introduced H.Con.Res. 17,
supporting the Local Radio Freedom Act. The resolutions would direct Congress to refrain from
imposing any new performance fee, tax, royalty, or other charge relating to the public
performance of sound recordings on a local radio station for broadcasting sound recordings over
the air, or on any business for such public performance of sound recordings.
In March 2015 Representatives Joe Crowley and Tom Rooney introduced the Allocation for
Music Producers Act (AMP Act), H.R. 1457, with support from the Recording Academy and
SoundExchange. The AMP Act would grant producers the statutory right to seek payment of their
royalties via SoundExchange when they have a letter of direction from a featured artist. The bill
has been referred to the House Committee on the Judiciary.
Also in March 2015, the Songwriter Equity Act of 2015 was introduced as S. 662 by Senator
Orrin Hatch and H.R. 1283 by Representative Doug Collins. Among other provisions, the bills
require the CRB, when setting royalty rates under the compulsory license available for the
reproduction and distribution of musical works, to establish rates and terms that most clearly
represent the rates and terms that would have been negotiated in the marketplace between a
willing buyer and seller in lieu of the Section 801(b)(1) factors.
In April 2015, Representatives Jerrold Nadler, John Conyers Jr., Marsha Blackburn, and Ted
Deutch introduced the Fair Play Fair Pay Act of 2015, H.R. 1733. The bill would adopt several of
the Copyright Office’s proposals with respect to sound recording royalties described in “U.S.
Copyright Office Recommendations.” These provisions include (1) extending the public
performance right in sound recordings to broadcast radio (with a cap on payments made by small
broadcasters, public and educational radio, religious services, and incidental uses of music), (2)
including sound recordings made prior to February 15, 1972, among the body of works requiring
royalty payments under federal law (and continuing to rely on state law for copyright protection),
and (3) directing the CRB to adopt a uniform market-based rate-setting standard for public
performance rights for all types of radio services (i.e., eliminate the Section 801(b)(1) four factors
test). In determining the rates, the CRB would have to consider whether the audio services would
enhance or interfere with the copyright owner’s other sources of revenue.
Also in April 2015, Representatives Marcia Blackburn and Anna Eshoo introduced H.R. 1999, the
Protecting the Rights of Musicians Act (PRMA). The bill would amend the Communications Act
of 1934 by prohibiting companies that own both broadcast television and broadcast radio stations
125 2015 Copyright Office Report, pp. 1-11.
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from seeking retransmission consent payments from multichannel programming distributors (i.e.,
cable and satellite operators) unless their radio stations pay performance royalties for sound
recordings.126 The bill would also ban the Federal Communications Commission from requiring
smartphones to include FM tuners.127
Author Contact Information
Dana A. Scherer
Analyst in Telecommunications
dscherer@crs.loc.gov, 7-2358
126 For more information about retransmission consent, see CRS Report R43490, Reauthorization of the Satellite
Television Extension and Localism Act (STELA), by Dana A. Scherer.
127 On the inclusion of FM tuners in smartphones, see CRS Report R43828, Radio Broadcasting Chips for
Smartphones: A Status Report, by Linda K. Moore.
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