Streaming Music and Copyright

The Senate Judiciary Committee recently voted in favor of a bill that would update copyright law and apply new regulations to interactive streaming services, such as Spotify. The Music Modernization Act (MMA) addresses the issues of non-payment to copyright holders—the basis of a $1.6 billion lawsuit against Spotify—and undefined unenforceable music property rights stemming from the lack of a comprehensive database that records the ownership of copyrights. In the current issue of Regulation, Thomas Lenard and Lawrence White recount the history of music copyright law and discuss some of the shortcomings of the MMA.

The New York Times quotes one supporter of the Act as stating, “This is going to revolutionize the way songwriters get paid in America.” But the MMA primarily incorporates streaming services into the existing framework through which distributors of music obtain permission from and provide compensation to music copyright holders.

A key provision of the MMA is that the Register of Copyrights would designate a Musical Licensing Collective (MLC) with two primary functions. The first is to serve as a collective rights organization that grants licenses for interactive streaming, receives royalties from streaming services, and remits the royalties to copyrights holders. The second function is to create and manage a database of rights holders.

The revolutionary aspect of the MMA is the creation of such a database. Currently, the music industry lacks a comprehensive database that keeps track of copyrights, which is what has created the problems of nonpayment and limited music distributors’ ability to negotiate with individual copyright holders. Lenard and White contend that the database building function of the MLC may be necessary because the economies of scale in managing such a database might be large enough to create a natural monopoly (though nongovernmental groups are already developing open source and blockchain initiatives to solve these problems).

However, by linking the database function of the MLC with its role as a collective rights organization, Lenard and White argue that the MMA simply extends a regulatory regime that limits competition. As it stands, the music copyright system largely consists of compulsory licenses and rates set by administrative or judicial proceedings. The MLC as outlined in the MMA would be a government enforced monopoly with the same anticompetitive practices.

As Lenard and White state,

Whenever an opportunity for pro-competitive reform of music licensing arises, policymakers seem to revert to the traditional regulatory model that discourages competition. They never miss an opportunity…to miss an opportunity. The MMA— with its reliance on compulsory licensing, blanket licensing by a marketing collective, and regulated rates—is the latest of several recent examples.

Instead of extending the current anticompetitive regulations to streaming services, policymakers should instead update the music copyright registration system and allow a competitive copyright market to develop through which those copyrights are traded.  Those changes would provide greater benefits for music creators, distributors, and consumers.

Written with research assistance from David Kemp.