EFF: A Plan to Pay Artists, Encourage Competition, and Promote Free Expression

A Plan to Pay Artists, Encourage Competition, and Promote Free Expression

As Congress gets ready for yet another hearing on copyright and music, we’d like to suggest that rather than more “fact-finding,” where the facts are inevitably skewed toward the views of the finder, our legislators start focusing on a concrete solution that builds on and learns from decades of copyright policy: blanket licensing. It will need an update to make it work for the Internet age, but as complicated as that will be, it has the profound benefit of adhering to copyright’s real purpose: spurring creativity and innovation. And it's far better than the status quo, where audiences and musicians alike are collateral damage in an endless war between giant tech companies and giant entertainment companies.

We all have lots of experience with blanket licensing, though we may not realize it. Nightclubs, restaurants, cafes, and radio stations all have their own soundtracks: the music that helps define the experience of any venue or business. Whether they favor jazz, rock, classical, or heavy metal, venues choose music that reflects what they want to convey to people about the character of the business. And they can make those choices because no music publisher can dictate what they play—Jazz Club B can play the same tracks as Jazz Club A. A publisher can't do a deal with a chain of restaurants or radio stations giving them the sole right to play their top hits.

This has been vital to the progress of music. It prevents the dominant music venues from becoming gatekeepers by insisting on exclusive access in exchange for playing publishers' leading tracks. If that happened, competitors without exclusive deals wither away, or would never launch.

But when the Internet came along, and Congress gave record labels a right to collect performance royalties, we lost sight of that principle of universal access.  The only statutory licenses for recordings that cover Internet services are narrow, and full of limitations. The result is a toxic dynamic in which a handful of companies dominate online music services. A few online giants—like Spotify—are standalone music companies, but most of the major music channels, like YouTube, iTunes, and Amazon Prime, are divisions of large, monopolistic conglomerates with very deep pockets. Apple, Google, and Amazon have leveraged their dominant positions in search and e-commerce to become even more dominant. If you only sell to high bidders, then eventually all the low bidders will disappear and the high bidders have all the sellers over a barrel.

The online giants desperately need competition to discipline them. That's the usual pattern: successful businesses breed competitors who try to offer something that's better (for customers, or suppliers, or workers, or all three). Getting audience-facing music service competitors into the mix will liberate musicians and music companies from operating at the sufferance and mercy of Big Tech.

And we know how to do it: create a system of universal licenses for recorded music that make playing music over the Internet more like playing music over the radio or in a club. Let companies pay a per-user license fee that gives them access to the same catalog that Amazon, Apple, and Google claim, without having to cut deals with every label and musician.

The Music Modernization Act, passed in 2018, was a step in the right direction. It created a new blanket license for musical compositions, covering downloads and interactive streaming. Let’s build on that momentum and create a complimentary license for sound recordings.

A Blanket License for the Internet

In broad strokes, here's how a robust Internet license for sound recordings would work. If you want to offer music to the public—if you want to start a streaming site, or let users exchange music, or share videos with music clips in them like TikTok users do—all you need to do is set up an account with a rights clearinghouse, called a "collecting society."

You pay the collecting society a monthly license fee that goes up with the number of users you have. If you have one user and Facebook has 2.5 billion users, then your license fee is 1/2,500,000,000 of Facebook's fee.

You also allow the collecting society to audit the use of music on your platform. They'll use statistically rigorous sampling methods to assemble an accurate picture of which music is in use on your platform, and how popular each track is.

The collecting society will then pay rightsholders for your use of the music. That's it, more or less. It's not complicated, but it will be a challenge. There are a lot of details we have to get right. Let's get into some of them.

Collecting Societies

Collecting societies get a bad rap, and not without reason. Independent labels and musicians have long accused the societies of undercounting their music and handing money that is rightfully theirs to big music corporations and the musicians who've signed up with them. Collecting society executives have been mired in corruption and embezzlement scandals, and other misdeeds that have put the whole sector in bad odor. At the same time, public interest groups have locked horns with collecting societies for years over proposals to make it easier to censor the Internet, and the societies have never stopped trying to expand the scope of who needs a music license—from nightclubs to restaurants to cafes to market stalls to school plays to classrooms.

But a better collecting society is possible. Indeed, the problems with societies over the years have demonstrated the pitfalls that a new collecting society must avoid.

Some requirements for a new collecting society:

• It must be transparent. From the methodology for sampling online music usage, to the raw data it analyzes, to the conclusions it reaches, to the payments it makes, the entire business should be open and subject to public scrutiny.
• It must be fair. Statistical analysis is an incredibly powerful tool, but it's also  to do well. The statistical method used to sample and extrapolate online music usage must be visible to all.
• It must be limited. From executive salaries to the scope of its activities, the collecting society must be limited to act as a utility player in the online music ecosystem, whose sole purpose is fairly apportioning music from online services to music creators.

Fairness

Under the current system, the recorded music industry is concentrated in the hands of three major labels, each of which has a long history of artist-unfriendly business practices that saw successful musicians who made millions for corporations go broke and die in poverty.

The power imbalance between the concentrated industry and the vast number of musicians who'd like to enter the industry favors one-sided, unfair contracts. That’s one reason copyright systems around the world include some form of reversion right through which creators can unilaterally cancel their contracts with their publishers, labels, or studios, and get the rights back.

Reversion points to another way to make online music usage fairer for artists. Blanket licenses for online music could and should also establish a minimum fraction of blanket licenses that go directly to artists, irrespective of their contracts with their labels. The current statutory license for “non-interactive” Internet streaming gives 50% of royalties to artists. We think that’s fair.

Artists have long railed against online music distributors like Spotify and Pandora, saying that they receive inadequate compensation for the use of their work. The streaming companies counter by opening their books and showing that they've paid billions in license fees. Can both sides be right?

Indeed, they can. If almost all of the streaming money is hoarded by the labels who get to arm-twist musicians into one-sided contracts, it's entirely possible for Spotify and Pandora to spend billions to license music while the musicians get next to nothing.

The online music industry is currently generating more revenues than the music industry did at the height of the CD bubble, and yet, musicians are going hungry. The labels’ market concentration has made the deals on offer to musicians progressively worse, as the probability that musicians can take their music to a rival label dwindles every time the big music companies merge with one another.

Statutorily guaranteeing that, at minimum, half of all license payments go directly to artists, irrespective of their label contracts, is a way to ensure that online music listeners and online music makers are on the same side and the more people love a musician's art, the more money the musician makes.

Competition

Artists and users are the biggest losers in the current ecosystem, thanks to the lack of competition.  If you want to listen to a favorite song, there's an (approximately) one in three chance that you're going to get it from one of the Big Three labels. When it comes to home Internet service, most people in the U.S. have only one or two equally expensive carriers. You'll search with Google, socialize with Facebook, and distribute your videos on YouTube.

Blanket licenses pay artists while promoting competition. If you want to start a TikTok, Facebook, YouTube, Apple Music, or Amazon Prime competitor, you’ll be free to make the very best service you can, and you will have access to the exact same catalog that the established services offer.

As you add users, your license payments go up as a function of your popularity. If you're an overnight sensation, great, your windfall needs to be divvied up with the creators whose music helped you succeed. If you're a slow burner and take years to ignite, then you pay very little to cover the usage of your small but loyal user base. If you want to start a specialty service to fill a specific niche, you don't have to hire a business-development team and an army of lawyers to do deals with the labels.

For artists, this is almost a license to print money. Every time a new service pops up online with a great idea for music, it represents a way for you to get paid. If a service interests new fans in your music, or gets existing fans to congregate around it, you get paid right away—their success is based on their ability to excite your listeners, not their ability to convince your label's corporate lawyers to do a deal with them.

Free Expression

Best of all, blanket licenses enable the kind of creativity that we've all come to know and love in the digital era.

Rather than putting musicians on the wrong side of the speech debate, insisting that others' creations be censored off the Internet, blanket licensing aligns the interests of musicians with the interests of audiences, and puts them on the side of free expression. Every artist should be on the side of free expression, always.

This is how things worked in the pre-Internet world. The blanket licenses that clubs and radio stations rely on—and the mechanical licenses that let anyone record their own cover of an existing song—meant that artists had the right to get paid for the use of their music, but not the right to tell a DJ they didn't like that she couldn't spin their album, nor the right to force another musician to destroy their cover of a song they wrote.

Details: Who, What, How

This plan has some pretty gnarly details that need to be worked out through collaboration with all the important stakeholders, especially creators. But we want to make sure we signpost those so you know what they are and can get to thinking about them:

• The license should cover both digital performance and distribution rights in sound recordings, so that all kinds of music services can participate.
• The license should cover "synch" rights for making things like YouTube and TikTok videos, but it should not cover movie studios or advertisers that want to include musicians' work in their products—a blanket license should add to musicians' income streams, not destroy them;
• The collecting society needs a rigorous statistical sampling and analysis system;
• We need a way to divide up money among musicians who collaborate on a song;
• We need a way to divide up money among musicians who mash up, sample, or remix someone else's song under this license;
• We need a way to verify the claims of musicians who represent themselves as rightsholders over a given recording or composition.

These are hard problems and they'll take real work. But solving these problems is much easier than making things fair for creators and audiences while continuing on our current, monopolistic path, with Big Tech and Big Content fighting one another for the right to profit from the rest of us.