A Free-Market Fix for Music Copyrights

It's time to end compulsory licensing.

If a federal policy strips owners of their rights to dispose of their property as they see fit, institutes price-fixing by unelected bureaucrats, and in the process picks an industry's winners and losers, you'd expect Republicans in Congress to be against it. But when it comes to copyright, all bets are off.

An incredibly convoluted maze of statutes and rules determined who gets paid what by whom when sound recordings are broadcast. Interactive music services that let you choose the songs you want to hear, such as Spotify and Rdio, must negotiate with copyright owners for licenses. If they can't come to an agreement, they can't play the music, which is why Metallica can have an exclusive deal with Spotify. When it comes to non-interactive music services that don't let you choose what song to hear, such as Pandora or Sirius XM, the broadcaster can instead choose to use a compulsory license.

A compulsory license is just that: compulsory. Broadcasters can legally take a copyright owner's music and play it without first asking for permission. Pandora streams Metallica whether the band likes it or not—something that should give pause to Republicans who believe copyright protects property rights.

It gets even more convoluted.

While AM, FM, cable and satellite radio, and Internet radio services like Pandora can all opt for compulsory licenses, they each pay different royalty rates. The rates are set by a panel of government lawyers called the Copyright Royalty Board, and they have the effect of favoring some business models over others. Internet radio services pay over 60 percent of their revenue in royalties, while Sirius XM, the only satellite radio company, pays only 8 percent. AM and FM radio aren't subject to a digital sound recording right, so it pays zero.

Although the board does the price-fixing, it's Congress who picks the winners and losers, because it decides the standards the board uses. Which standard applies to a service depends on whether or not the service was "preexisting" in 1998 when the Digital Millennium Copyright Act was enacted. New technologies, such as webcasting, are subject to a standard that results in much higher rates than those faced by "old" technologies like satellite radio.

The standard that applies to Internet radio is known as the "willing buyer/willing seller" standard, and it's meant to mimic the price that a free market would produce. The Board engages in a proceeding in which the different sides present evidence from economists and other experts, and then voila, it comes up with a "market rate." If such a process worked, the Soviet Union would still be around.

Cable and satellite radio's rates are set using a different standard outlined in Section 801(b) of the Copyright Act. Among other things, as the Board considers the rate to fix for these "old" services, the statute requires it to "minimize any disruptive impact on the structure of the industries involved." That's right. The board must set a rate that protects incumbents, presumably by fixing the current industry structure in stone.

This cronyist state of affairs is precisely why so many believe that copyright reform is an issue ripe for the G.O.P. to take on, especially as it attempts to redefine itself for the 21st century. So it was heartening to see Rep. Jason Chaffetz (R-Utah), introduce the Internet Radio Fairness Act, which seeks to fix the royalty rate mess.

Unfortunately, the bill goes about it the wrong way. It would bring Pandora and other webcasters under the lower-rate 801(b) standard, which certainly would level the playing field. But that's a giveaway to Internet radio companies, since it's likely that a negotiated rate would be higher than what the board would set.

Unsurprisingly, the bill was met with stiff opposition from others in Congress who, backed by the music industry, instead want to normalize rates by bringing satellite and cable radio up to the "willing seller/willing buyer" standard, and to make AM/FM radio start to pay as well.

Now we are in the midst of a lobbying war between Pandora, the music industry, Sirius XM, and traditional broadcasters. Each wants Congress to gore the other one's ox; all claim to have consumers' and artists' best interests at heart. No one seems to be considering the true free market alternative: get rid of compulsory licensing.

If Republicans really care about copyright as a property right, they should treat it as property and allow copyright holders to decide to whom they will license their music. That would mean prices negotiated in a free market, not fixed by apparatchiks, and an end to politically determined winners and losers.

Some argue that without compulsory licenses it would be too costly for Internet radio startups to negotiate deals with tens of thousands of artists for hundreds of thousands of songs. But that's why the recording industry has set up copyright collecting societies, like SoundExchange, to deal on behalf of labels and artists. And as technology advances, it continuously lowers the transactions cost associated with negotiating.

What's more, if interactive music services like Spotify and Rdio can negotiate licenses in a free market without compulsory licenses, so can Pandora and other webcasters. And if Metallica doesn't want to be on Pandora, then tough luck. Markets are messy. We don't always get the outcome we want in each case, but in the long run markets are more efficient and create more prosperity than any order Congress could possibly plan.

Members of Congress, and in particular Republicans, need to understand that a belief in property rights and market processes can't be selective. They should end compulsory licensing now.

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  • tarran||

    Once again, the Republicans are, as a party, mercantilists, you know, the economic system Adam Smith wrote the 'Wealth of Nations' to oppose?

    Mercantilists tend to not like free markets and instead like big business partnered with big government. The current copyright regime is just the sort of thing they adore!

  • Counterfly||

    So you get to choose between mercantilists or fascists. The government business team-up is going to be either through force or bakshish, your choice.

  • tarran||

    I've long argued that mercantilist economies inevitably go fascist: they increasingly socialize to cope with the economic dislocations from misallocation of resources.

    The Democrats went full retard in the late 1800's, and it's pretty bad that their socialism makes mercantilism look reasonable by comparison.

  • John||

    So was Britain not mercaltilist because I don't recall it ever being fascist.

  • tarran||

    The English became socialist in the 1920-1940 time frame and stayed that way until Thatcher rescued them.

  • John||

    But they didn't go fascist.

  • Counterfly||

    That's debatable. Especially if you consider broadcasting a commodity.

  • entropy||

    Depends on what you mean by fascist.

    If we are that now, they certainly are now.

  • Theresa788||

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  • tarran||

    I guess I'm guilty of imprecise language. What I meant was that mercantilist societies that don't undergo some form of revolution - where the ruling classes are trying to actively preserve the mercantilism system - will slide into fascism. I don't mean the military uniforms fascism like Italy... I mean the civil fascism of the modern French Republic.

    In England the Labor party managed to seize power and peacefully rework the society from a broadly mercantilist one into a socialist one. And, the English socialism was not explicitly fascist in that they nationalized many industries (like the rail network). However, the industries that weren't nationalized were run along lines straight out of Mussolini's Italy where government bureaus administered various forms of industrial policy.

    One of the things I love about the U.S. is that there is (or was) a cultural aversion to that sort of thing in the DNA. Coming form Turkey which is fascist (the passage on Kemalism in Mises Socialism was so eye opening), even though I was an eight year old, I could feel the lack of oppressive control, the absence of a requirement to bribe people to get things done. Then I moved from New Hampshire to a suburb of Boston and realized that not all bits of the U.S. were the same. ;)

  • ||

    Then I moved from New Hampshire to a suburb of Boston

    Well that's your problem right there, Masshole.

  • Lisa G. Wyrick||

    my neighbor's mom makes $88/hr on the computer. She has been out of a job for six months but last month her pay was $12918 just working on the computer for a few hours. Here's the site to read more... http://www.youtube.com/watch?v=diP-o_JxysA

  • Counterfly||

    But that's why the recording industry has set up copyright collecting societies, like SoundExchange, to deal on behalf of labels and artists. And as technology advances, it continuously lowers the transactions cost associated with negotiating.

    Please, Brito, pull the other leg. Like the market could ever figure out a way to reimburse everyone amenably without the government getting involved.

  • ||

    What rubbish. Copyright is nothing but a government issued extortion license. Copyright should be abolished, period.

  • John||

    I wouldn't abolish it. But I would limit it to say 50 years. Endless copyright or life of the author copyright is not comparable with the modern corporation.

  • sarcasmic||

    But, but, but how will Disney be able to compete if anyone can use Mickey's likeness?

  • John||

    Create some new content maybe?

  • Pain||

    I would like to see copyright gone but I would be willing to compromise to limit it to 20 years. Similar to a patent. After that make something new or GTFO.

  • Zeb||

    I think that sounds about right.

  • Emmerson Biggins||

    I think we could work out an acceptable compromise. How bout 20 minutes?

  • Finrod||

    Here's my copyright solution:

    1) No copyright can last more than 100 years, period. (The song Happy Birthday, written in the 19th Century, is still under copyright.)

    2) Once an item under copyright is offered for sale, if it is ever withdrawn from sale for any reason, a copyright expiration timer kicks in. The length of time on the timer depends on the type of item: software gets 5 years, audio and video gets 10 years, books and other printed material gets 20 years. If once the timer starts, the item goes back on sale, the timer is paused, to resume when the item is no longer for sale.

    Personally I'd prefer 50 years or less for a maximum too, but since it's already been pushed up to 95+ years, at least put a permanent cap at 100 years. The timer part is so that abandoned works enter the public domain much more quickly before the media it's distributed on becomes obsolete and unreadable (in the case of electronic items).

  • JeremyR||

    50 years is too long. 14 plus renewable for another 14

  • Alan||

    As Michael Hart was fond of noting, 98% of profits from copyrighted material comes in the first six years after publication.

    Now, there are some exceptions so I am willing to allow 10 years, or possibly even 20 years for works that are duly registered (with a fee) for that longer period of monopoly - but even 50 years is far too long, especially as the pace of change is accelerating - and this "life of the author plus 70 years" crap is beyond ludicrous. It's just evil.

    I don't continue to get paid for the work I did 10 years ago - why should artists?

  • sarcasmic||

    Lars is a cock. I hope he dies in a plane crash. The sooner the better.

  • John||

    I fucking can't stand that guy and his shitty band.

  • sarcasmic||

    Their first few albums were great.
    Here's a song about Passover.
    http://www.youtube.com/watch?v=lXWq3f01e2U

    Slaves
    Hebrews born to serve, to the pharaoh
    Heed
    To his every word, live in fear
    Faith
    Of the unknown one, the deliverer
    Wait
    Something must be done, four hundred years

    So let it be written
    So let it be done
    I'm sent here by the chosen one
    So let it be written
    So let it be done
    To kill the first born pharaoh's son
    I'm creeping death

  • tarran||

    I actually like Death Magnetic, it has a Slayer vibe to it.

  • Jordan||

    The Black Album, Load, Reload, and Garage Inc. kicked ass. I haven't liked any of their newer stuff.

  • Counterfly||

    Was this an attempt at a musically oblivious 8th grader meme? Because it's a bit muddled.

  • entropy||

    Um, WTF? The black album was where everything went down the pisser.

    It was sorta decent but it was the beginning of the end. Load, Reload and and that shit was shit.

    Kill 'Em All, Ride the Lightning, Master of Puppets and And Justice For All all kicked ass and are amazing. Post black-album, it's a completely different, much more commercial, entirely shitty band.

  • Jordan||

    Haters gonna hate. I just don't like heavy metal.

  • tarran||

    I just don't like heavy metal.

    Ah... that explains why you like Metallica's shittiest work. ;)

  • sarcasmic||

    What tarran said.

    Oh, and WHY ARE YOU STILL ON MY FUCKING LAWN!?!

  • Jordan||

    Don't make me confess my love for deep dish pizza.

    Fuck it, I can't even pretend to like that.

  • entropy||

    Exactly. Goes to show the obvious change that occured during the black album. People who don't like metal like post-Black Metallica.

    Prior to that album they actually used to be a pretty great speed metal band. Then they said fuck it, the hard rock market is bigger and they can sell more t-shirts if they just remake Bob Seiger songs.

  • Rasilio||

    But what of us who do like metal but still prefer the post Black Album Metallica

  • sarcasmic||

    What entropy said.

    Oh, and GET OFF OF MY FUCKING LAWN!

  • robc||

    I heard the term Selloutica first thrown around with And Justice For All.

  • ||

    You idiots do understand that every bit of talent in that band left with Dave Mustaine, right? Megadeth is what Metallica should be, and is vastly superior.

  • Counterfly||

    Hey if I want to listen to Jesus metal I'll listen to something that doesn't suck, like Suffocation.

  • Baal||

    What about Flyleaf in fire and brimstone mode ?

  • sarcasmic||

    Megadeth still ranks right up there as one of the best shows I've ever seen. Maybe the best. No joke.

  • Counterfly||

    re: sarcasmic @11:25 AM

    Suicidal Tendencies in 1990 is mine. Although I also saw a White Zombie/Pantera show that same year which was insanely good.

    What type of concert was the Megadeth one? Stadium or smaller venue?

  • sarcasmic||

    McNichols in Denver. Seats 15K or so. Not huge, but not small either.

    I saw Zombie/Pantera at Red Rocks. That was a good show. But Megadeth was still better. Never saw Suicidal.

  • entropy||

  • entropy||

  • Counterfly||

    I heard the term Selloutica first thrown around with And Justice For All.

    I think I did too, because they made a video and a radio edit for One.

    I can't blame them for doing that back then though.

    Actually I guess I can a little as they were already selling out stadia and such. But then when they follow up with that Bob Rock horseshit, then they get the full end of the blame guage.

    I haven't watched that 'documentary' they did where they're all gay and stuff, but I feel like Kirk Hammet got kind of a screwjob on that, and just didn't want to like start a solo project or something.

  • EDG reppin' LBC||

    Kill 'Em All, Ride the Lightning, Master of Puppets and And Justice For All

    Yes. These are the only acceptable Metallica albums.

    Also, fried chicken.

  • JD the elder||

    "The black album was where everything went down the pisser"

    You can tell exactly where Metallica finally ran out of Budgie and Diamond Head material to rip off.

  • ||

    Don't feel bad guy, I liked both their pre-BA and post-BA stuff.

    And Deep Dish Pizza is THE BEST PIZZA!

  • entropy||

    And Deep Dish Pizza is THE BEST PIZZA!

    You are the reason democracy doesn't work.

  • BlogimiDei||

    DRINK!

  • BlogimiDei||

    entropy, please decrese the entropy in your system.

  • entropy||

    No can do. Entropy can only increase.

  • entropy||

    It's like government spending.

  • ||

    Awesome!

  • Zeb||

    Huh? That is their newer stuff, isn't it? Everything past the Black album will always be the newer stuff.

  • SusanM||

    Metallica died in '86.

  • BMFPitt||

    If a federal policy strips owners of their rights to dispose of their property as they see fit, institutes price-fixing by unelected bureaucrats, and in the process picks an industry's winners and losers, you'd expect Republicans in Congress to be against it.

    No I wouldn't.

  • FreedomRocks||

    The licensing companies like BMI and ASCAP are another problem. They are killing live music and starving smaller artists. They demand $3 "a sitting" (each customer served at an establishment) if they have a live band. Doesn't matter what the band is playing.

    Then from the money collected they pay royalties not necessarily to the artist or estate of the song registered, but to who is selling most at the time. They don't ask for band playlists of covers or care if it's all original music. For instance, my band plays Johnny Cash songs... Lady Gaga might get the money for that because they don't track music they just demand money for people to play music.

    Because artist royalties paid can be are mostly are as low as $0.20 (more if you have the publishing). So, as a musician, I wouldn't mind sending a set list and paying $0.25 per song each performance. It would be a cost of business to the band. It shouldn't be a cost of business for the bar owner. Yet the law let's BMI and ASCAP, etc. routinely shake down venue owners which in turn makes them choose to not offer live music.

    Screwed up, eh? Any fellow musicians that would like to band together to make an "awareness campaign" of that little problem? (I can't believe I just suggested and awareness campaign... Oi!)

  • FreedomRocks||

    Plus, with my model The Cash Estate would properly get the money for the song instead of somebody like Lady Gaga.

  • Stephan Kinsella||

    Brito is wrong to imply that copyrights are legitimate property rights or that deals negotiated under copyright duress are free market results.

    A compulsory license is indeed preferable to the legal extortion that state patent and copyright permit (see my How to Improve Patent, Copyright, and Trademark Law); but more preferable yet would the complete and immediate abolition of these unconstitutional and unlibertarian abominations. Patent and copyright law are completely incompatible with private property rights, free markets, market competition, freedom of speech, and libertarian principles. Principled libertarians are waking up to this.

  • jdgalt||

    How can patents and copyrights be unconstitutional when the authority for them is right there in Article I, Section 8, seventh item?

  • Stephan Kinsella||

    Severa ways. First, it authorizes congress to protect artists "writings." Is a movie or an audio song or a painting a "writing"? no.

    Second, it arguably requires the law to promote the progress of science. The evidence shows that patent and copyright retard and distort creation and innovation. There is no proof that it promotes it or that it can or that it is necesary.

    Third, the courts recognize copyright suppresses free speech. they seek to "balance" the 'tension" between the copyright law and the first amendment. But copyright law is enacted pursuant to the copyright clause in the 1789 constitution. The first amendment was ratified 2 years later, in 1791. If there is a conflict the later amendment governs. And there is a conflict.

    Fourth: the Constitution is unlibertarian and so even if copyright is constitution it is still wrong.

    See http://c4sif.org/2011/11/copyr.....itutional/

  • Dalton56||

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  • jdgalt||

    You're right that the current rules are stupidly complicated (and unfair to "Internet radio stations" as compared to over-the-air ones), but I must disagree with your bottom line.

    The law already gives copyright holders way too much power to restrict the re-use of their work, so much so (especially in software, which I write) that the law blocks a lot more innovation of new material (the purpose of copyright) than it causes. (And I'm not just talking about fanfic, though that certainly should be legalized.)

    Mechanical licensing, as it now exists, is the only meaningful limit on this excessive power. So let's forget about ending it and start working to extend it to software, books, and movies.

    This is not to say there should be no copyright. But after, say, a maximum of 20 years (and I'd propose more like 5) from publication, a copyright owner's right to restrict the reuse of his work should end. Thereafter he should have only a right to collect a standard royalty per copy, and should have no say at all beyond that.

    And in the meantime, we should work to end laws like DMCA, which makes it illegal to defeat so-called "DRM" even when that technology is enforcing "rights" that the content creator does not legitimately have, such as telling me I can't skip the commercials on my purchased DVDs.

  • John Galt||

    Fuck commercial musicians and their crap product. Their heads became so huge my world could no longer support them.

    Music isn't air, it's not water, it's not food or shelter. It's not a necessity. It's purpose is enjoyment.

    All the members of my immediate family, including myself, play at least one instrument, or sing, or both. Many of my friends and acquaintances also sing or play. Music isn't a precious rarity like gold or platinum.

    When commercial artists deluded themselves into believing they were priceless royalty they took away the one purpose music has: enjoyment.

    Fuck fake plastic wanna be royalty. I never use their products, not ever. Couldn't even enjoy what little they have to offer if I tried.

    And, I'm not starving for music, anything but that. My daily allowance is always met, and usually exceeded. But with the real thing. The way it was meant to be.

  • Kurbster||

    The original intent of copyright was to promote the public domain, while still compensating the creator for his effort. When copyright was introduced in 1790, it had to be renewed every 14 years up until the creator's death. Now, it is guaranteed for the life of the creator + 70 years

    a simple fix for copyright problems would be to kick the entertainment industry lobbyists out

  • John Galt||

    That would be a great start. If they don't waste too much more time before giving them the boot they may even save the music industry before it sinks completely.

  • Kurbster||

    The music industry cannot be saved. The RIAA only exists for promotional and distributional reasons. Now that anyone can create their own recording with studio-quality equipment for a few thousand dollars, and cut out the middleman completely with online distribution and extremely cheap CD production, music labels are pretty much unneeded anymore. The only thing that is keeping them aloft is current artist contracts and manipulating criminal copyright law.

    The only thing that will save them is a Obama bailout

  • John Galt||

    Let's hope they don't get anymore of an Obama bailout than they most likely already have.

    And it's a great thing the middleman can be cut out. There's been some very enjoyable music on YouTube for some time now that's produced and distributed by amateur artists. Probably won't be before we see the RIAA and politicians get together to force some kind of difficult licensing requirements upon those artists. Commercial artists' lawyers and promoters will always look for someone other than themselves to blame.

  • John Galt||

    *won't be long

  • Alan||

    Not only that, but it could only be renewed once - for a total of 28 years.

    In today's faster-paced world, the copyright period should be much shorter. As Michael Hart often noted, 98% of the profit from copyrighted works is made in the first 6 years after publication.

  • Alan||

    As Rick Falkvinge has noted about the industry that has been built around the copyright monopoly, since when is it our job to fix their flawed business model?

    http://falkvinge.net/2012/11/3.....-business/

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