Copyright and the Music Marketplace Music Biz 2015

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Copyright and the Music Marketplace Music Biz 2015 Jacqueline C. Charlesworth General Counsel and Associate Register of Copyrights U.S. Copyright Office

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Music copyright timeline 1790: Musical compositions protected as “books” 1831: Rights granted for reproduction and distribution of musical works 1897: Rights granted for the public performance of musical works 1908: Supreme Court decides White?Smith v. Apollo, holding mechanical reproductions are not copies

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1941: ASCAP and BMI enter into consent decrees with the DOJ 1972: Congress grants protection for sound recordings, but no right of public performance 1976: Mechanical compulsory license recodified in section 115; increased statutory rate to 2.75 cents Music copyright timeline 1909: Congress grants rights for mechanical reproductions in phonorecords and enacts compulsory license with a 2 cent rate

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Music copyright timeline SIRA 1998: DMCA amends section 114 license to include internet radio; also amends section 112 to allow temporary server copies 2006: SIRA introduced to modernize 115 license for digital uses, but does not become law DMCA 1995: DPRSRA enacted; granting digital sound recording performance right codified in section 114

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Music copyright timeline 2014: California and N.Y. courts hold public performance of pre?1972 sound recordings protected under applicable state law The Turtles 2013: Federal rate courts rule that publishers cannot withdraw digital rights from ASCAP and BMI consent decrees 2015: U.S. Copyright Office releases report, “Copyright and the Music Marketplace”

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Reproduction and distribution (mechanical) rights Public performance rights Synch rights, etc. Musical Work Synch rights, etc. Public performance rights for digital noninteractive Downloads, interactive streaming, CDs, etc. Downloads, interactive streaming, CDs, etc. Publishers directly Traditional media (radio, TV, etc.) and new media (internet, etc.) Traditional media (TV, film, etc.) and new media (internet, etc.) Publishers directly or through labels Statutory notice Live Copyright and the Music Marketplace: Existing Licensing Framework Public performance rights for terrestrial (AM/FM) radio No federal performance right Labels directly Internet and satellite radio, etc. Traditional media (TV, film, etc.) and new media (internet, etc.) Reproduction and distribution rights, and public performance rights for digital interactive Labels directly

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From physical albums to digital singles

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Rise of streaming

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The current system “From a copyright perspective, we are trying to deliver bits and bytes through a Victrola.”

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Music study process Request for public comments (Mar. 17, 2014) Public roundtables in Nashville, Los Angeles and NYC (June 2014) Request for additional comments (July 23, 2014) Report released (Feb. 5, 2015) NYC Roundtable

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Key concerns Fair compensation for creators Market trends Disparate treatment of rights and uses Licensing parity Regulated vs. nonregulated Ratesetting standards Musical works PRO consent decrees Section 115 license Sound recordings Section 112/114 license Terrestrial performance right Pre-72 sound recordings Data issues Reporting transparency

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“Avicii’s release ‘Wake Me Up!’ that I co?wrote and sing … [is] the 13th most played song on Pandora since its release in 2013, with more than 168 million streams in the US. … In return for co?writing a major hit song, I’ve earned less than $4,000 domestically from the largest digital music service.” – Aloe Blacc “Everybody’s complaining about how music sales are shrinking, but nobody’s changing the way they’re doing things.” – Taylor Swift Creator income

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Role of government regulation

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Disparate ratesetting standards Section 115 mechanical (musical works) Section 114 satellite radio (sound recordings) Section 801(b)(1) multifactor standard Policy-oriented standard that can result in below-market rates Copyright Royalty Board Section 114 internet radio (sound recordings) “Willing buyer/willing seller” standard Designed to emulate marketplace rates Applies to section 114 internet radio (sound recordings) Copyright Royalty Board PRO consent decrees (ASCAP or BMI’s musical works) “Reasonable rate” standard determined under “fair market value” analysis with reference to antitrust principles Court cannot consider sound recording performance rates (section 114(i)) S.D.N.Y. rate courts

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Rate disparities: Sound recordings vs. musical works

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Section 115 license Section 115 mechanical license originally enacted in 1909 Congress concerned with piano roll monopoly Burdensome song-by-song licensing 801(b)(1) standard perceived as unfair by some No audit right Record labels license these rights in free market

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PRO consent decrees Consent decrees Entered in 1941 Rates set by S.D.N.Y. “rate courts” Right to perform musical works in a PRO’s repertoire upon application without immediate payment Other PROs and record labels not subject to consent decrees Pandora decisions Denied partial withdrawal of “new media” rights – publishers must be “all in” or “all out”; decisions appealed ASCAP rate set below negotiated rates; BMI trial just ended DOJ reviewing decrees for potential modification Considering partial withdrawal, bundling of rights

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Section 112 and 114 licenses Administered by SoundExchange Appear to be functioning fairly well Debate on royalty rates Services want lower rates, creators want higher rates Webcasters have gone twice to Congress for relief from CRB-set rates (2007, 2012) Treatment of customized services (e.g., Pandora) as noninteractive In 2009, the Second Circuit held that personalization did not mean a service was “specially created for the recipient.” Arista Records, LLC v. Launch Media, Inc., 578 F.3d 148 (2d Cir. 2009) No license termination provision for delinquent licensees Technical limits of section 112 (e.g., destroy copies in 6 months)

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Pre-1972 sound recordings Only sound recordings fixed on or after Feb. 15, 1972 are protected under federal law State law protection varies In 2011 report, Copyright Office recommended full federalization of pre-72 recordings

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Flo & Eddie Inc. v. Sirius XM, No. 13?cv?5693 (C.D. Cal. Sept. 22, 2014) California law (Cal. Civ. Code 980(a)(2)) recognizes performance right in pre-72 recordings Capitol Records, LLC v. Sirius XM, No. BC520981 (Cal. Super. Ct. Oct. 14, 2014) Adopted federal court’s reading of California statute Flo & Eddie Inc. v. Sirius XM, No. 13?cv?5784 (S.D.N.Y. Nov. 14, 2014) Public performance of pre-­1972 sound recordings constitutes common law copyright infringement and unfair competition under New York law Currently on appeal Other cases hold pre-72 recordings fall outside of DMCA safe harbor See, e.g., Capitol Records, LLC v. Vimeo, LLC, 972 F. Supp. 2d 500 (S.D.N.Y. 2013); UMG Recordings, Inc. v. Escape Media Grp., Inc., 107 A.D.3d 51, 964 N.Y.S.2d 106 (1st Dep't 2013) Pre-1972 sound recordings

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Terrestrial performance right Federal law does not recognize a terrestrial performance right for sound recordings Radio is a $17 billion industry Artists and sound recording owners not paid Curtails reciprocal international royalties Unfair to competing, non-exempt internet radio and satellite providers Copyright Office has supported sound recording performance right since before 1976 Act

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Data issues Lack of authoritative centralized music database 30 million musical works in use by digital services Manual research often required Challenge of matching sound recordings to musical works Data managed by different stakeholders – use of standard identifiers (e.g., ISRC, ISWC, ISNI) inconsistent Industry participants view data as proprietary Inefficient for both users and owners

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Reporting transparency Hard for creators and owners to track usage and payment Unreliable and missing data Reporting and payment of advances unclear Role of equity deals (e.g., Spotify) Concerns about writers’ and artists’ shares under direct deals Lack of audit rights $ 00.000002

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Related developments

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Recent legislative proposals “[RESPECT] Act” (H.R. 4772) introduced by Rep. Holding (17 cosponsors) “Allocation for Music Producers Act” (H.R. 1457) introduced by Rep. Crowley (1 cosponsor) “Fair Play Fair Pay Act of 2015” (H.R. 1733) introduced by Rep. Nadler (7 cosponsors) “Protecting the Rights of Musicians Act” (H.R. 1999) introduced by Rep. Blackburn (1 cosponsor) “Songwriter Equity Act” (H.R. 1283, S. 662) introduced by Rep. Collins (14 cosponsors) and Sen. Hatch (3 cosponsors)

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Music creators should be fairly compensated for their contributions The licensing process should be more efficient Market participants should have access to authoritative data to identify and license sound recordings and musical works Usage and payment information should be transparent and accessible to rightsowners Guiding principles Stakeholders agree:

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Government licensing processes should aspire to treat like uses of music alike Government supervision should enable voluntary transactions while still supporting collective solutions Ratesetting and enforcement of antitrust laws should be separately managed and addressed A single, market?oriented ratesetting standard should apply to all music uses under statutory licenses Guiding principles Copyright Office says:

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Licensing parity Treat sound recordings and musical works more alike in digital realm Musical work owners should be able to opt out of government-regulated licensing for interactive streaming and downloads All noninteractive (including terrestrial radio) under section 112 and 114 licenses Adopt single market-oriented standard for all ratesetting Repeal 114(i) prohibition Move PRO ratesetting to CRB Antitrust oversight to remain with federal courts

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Licensing parity Enact complete sound recording performance right Include under section 112 and 114 licenses Promotional value of radio can be taken into account by CRB Protect pre-72 sound recordings under federal law Adopt Office’s 2011 recommendations for full federalization Would eliminate need for state-by-state compliance Would promote licensing parity

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Modernize section 115 Change to blanket license Allow bundling with performance rights But no expansion of section 115 Record companies proposed extending statutory licensing to consumer audiovisual products such as music and lyric videos Copyright Office declined to recommend Market appears to be responding to licensing needs for these products (e.g., NDMAs, YouTube’s licensing program) Updated licensing framework

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Maintain section 112 and 114 licenses with adjustments Should also cover noninteractive streaming of musical works (internet radio) and terrestrial performances of sound recordings (broadcast radio) Possibility of joint ratesetting for musical works and sound recordings Technical aspects of license should be fine-tuned by regulation (e.g., ratesetting distinctions between custom and noncustom radio, sound recording performance complement) Allow SoundExchange to terminate noncompliant licensees Updated licensing framework

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Music rights organizations (MROs) Licensing organizations would administer collective blanket licenses Could bundle performance and mechanical Would collect and distribute royalties Disputed rates set by CRB as needed Entities would qualify by market share (e.g., 5%) Musical work owners could opt out of MRO and license directly Would supply work and ownership data (including opt-out information) to general music rights organization (GMRO) Updated licensing framework

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General music rights organization (GMRO) Non-profit designated by government Would maintain central public database of works and ownership information (including opt-outs) Would populate with standard identifiers (e.g., ISRCs, ISWCs and ISNIs) and match sound recordings to musical works Would collect royalties and administer claims system for unidentified works Would be funded through licensee surcharge, administrative fees and unclaimed royalties Updated licensing framework

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Licensees GMRO MRO Data Royalties Royalties & administrative fees Data Data Data Copyright and the Music Marketplace: Proposed (G)MRO Framework MRO MRO MRO Data Data Royalties Royalties Royalties

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Improve data and transparency Implement data standards through GMRO Adopt: ISRC (sound recordings) ISWC (musical works) ISNI (creators) Phase in over time To be supplied by MROs and reported back by licensees Financial incentives for compliance Additional standards can be adopted in future

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Improve data and transparency Creators able to collect writers’ and artists’ shares of performance royalties through chosen MRO or SoundExchange Would include direct opt-out deals Material financial terms of direct deals should be disclosed Publishers and record labels should develop best practices with creators

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How long is this report again? 250 pages: 245 pages: 240 pages: 202 pages: “Lengthy”: “Mammoth”:

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“It’s not beach reading season . . . so it’s understandable why the tome hasn’t triggered a mass frenzy just yet.” – Billboard

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Copyright and the Music Marketplace Music Biz 2015 Jacqueline C. Charlesworth General Counsel and Associate Register of Copyrights U.S. Copyright Office