In this and future posts, I will be addressing five things the Congress could do for music creators that are easy to do and that would help develop an online market for music. First up is a slightly esoteric, but important area: royalties paid by companies like SiriusXM for sound recordings made before 1972.
Many of us in the music business know that songwriters and recording artists are financially worse off under the "new boss" than they were under the "old boss." We have watched older artists "die on the bandstand" because the royalty or residual income they had counted on to support them in their retirement began evaporating with the arrival of the Internet in their lives. We have watched younger artists and songwriters essentially give up on the idea of doing anything but breaking even -- maybe, if they are lucky -- on sound recordings. And there is a growing realization that being in cut out bin, or as it's known online the "long tail"...well, is not ideal. So what is to be done?
Fix the Past Before You Fix the Future
People of goodwill want to do something to help, starting with Chairman Bob Goodlatte of the House Judiciary Committee. Chairman Goodlatte is holding a series of hearings about what to do to address the current U.S. Copyright Act which had its last general revision in 1976 and has evolved through amendments since then.
There are lots of different issues that a variety of people want addressed in the new act, but my guess is that there is a concern about another competing law, the law of unintended consequences. And when we as a nation are staring double digit real unemployment in the face, doing no harm may be almost as important as fixing the harm from the last time they tried to do no harm.
Here is one thing the Congress could do today to fix the unintended consequences of the past before they turn to the future -- all of which, if not fixed first, will continue to fester in any new laws.
Pre-72 Sound Recordings and Webcasting Royalties
Congress made a great and politically difficult lift when it created the public performance right in digital uses of sound recordings. The Congress took a very comprehensive look in 1995 and again in 1998 at how best to encourage the development of this market and created a limited compulsory license for the digital performance right, a royalty system and a collection and accounting function for the payment of those royalties. All countries that are business partners with the U.S. except China recognize a broad right in public performances of sound recordings, so U.S. recognition of the digital right is a good first step.
What they did not address was what may seem like a "gotcha" loophole -- should that federal copyright royalty be available to recordings that are not protected by federal copyright protection? An additional fact -- federal copyright protection of sound recordings only came into effect in 1972. Obviously there were plenty of sound recordings available before then, but those sound recordings are protected under a patchwork of state laws and were not granted federal protection.
Hold on, you say -- sound recordings before 1972 include formative recording artists like Louis Armstrong, Sarah Vaughn, Duke Ellington, Bessie Smith, John Coltrane, Ella Fitzgerald, Robert Johnson, Janis Joplin, Otis Redding, Cream, The Temptations, Jimi Hendrix, The Doors and The Beatles. And those are just the famous ones. You know -- if you wanted to you could make entire satellite radio channels from just those artists. And if you thought that, you'd be right.
Now add an additional fact: When Pandora and SiriusXM pay royalties for sound recordings under the compulsory license, the artists or sound recording owners cannot say "no", they cannot opt out of the compulsory license. And when those royalties are paid, the payment is made to SoundExchange which then pays 45 percent of the net royalty to the artist and 2.5 percent to each of the principle unions involved -- outside of the artist's recording contract so the labels never touch it.
In other words -- the money goes directly to the artists. So the Congress did a great, great thing (modeled, frankly, on the way songwriters are treated by their performance rights organizations).
An "undeserved windfall"?
Enter the loophole, because some people just have to take an edge -- or as the tech folks say, an "exploit." The recent Copyright Office report to the Congress on pre-72 sound recordings notes (text accompanying footnote 444):
SiriusXM [told the Copyright Office] that requiring statutory services [like SiriusXM] to pay under the statutory license for recordings currently protected under state law would provide an undeserved windfall for recordings created and paid for more than 40 years ago, at the expense of services like Sirius XM. It also noted that to the extent that any services are mistakenly making payments for public performance of pre-1972 sound recordings, that SoundExchange should not be accepting or distributing such payments.
An "undeserved windfall" to musicians? To artists? To all of those artists listed above and many, many more? An "undeserved windfall" to artists and musicians who are nearing or well past retirement age and who gave us some of the greatest American music that is still in demand 50 years later to the great benefit of those taking advantage of the compulsory license like SiriusXM? While SiriusXM has over a billion dollars in free cash flow?
If there is an undeserved windfall, it is to these beneficiaries of the digital public performance right, webcasters and satellite radio in particular, who want to stiff artists and musicians when they need it most based on a "gotcha" loophole that the Congress could fix.
Let's "Level the Playing Field" and Fix the Loophole
There are a lot of arguments about other aspects of federalizing pre-72 sound recordings, but the Chairman Goodlatte does not need to get drawn into every single one of these unrelated arguments. (See Copyright Office Report at p. 122.) It would be a simple fix to require the payment of statutory royalties by the commercial beneficiaries of the compulsory license -- to all the artists, not just the ones whose recordings happened to be released in the right year.
Webcasters offered tortured arguments about "rate parity" in the "Internet Radio Fairness Act" legislation -- well, "fairness" begins at home. It was encouraging to hear Ranking Member Mel Watt's commitment to the public performance royalty at this week's hearing in the House Subcommittee on Courts, Intellectual Property, and the Internet, but if this pre-72 "gotcha" loophole, this "exploit," isn't fixed, it will be perpetuated once terrestrial radio starts paying its fair share as Mr. Watt desires.
The Congress could fix this problem with the stroke of a pen. This would accomplish both fair payments to artists and musicians on pre-72 recordings, and also get the issue out of the way for future expansion of the public performance right -- both worthy goals.
And wouldn't cost the taxpayer a dime.