Senate hearing continues debate on music licensing reform
More testimony about reform of the Section 115 compulsory license was given today, this time before the Senate Judiciary Committee's Subcomittee on Intellectual Property. Several parties opined that removing the impediments to licensing of online services is a necessary step to provide legitimate services to consumers and thereby reduce piracy, and that the Grokster decision provides a window of opportunity to move forward in this manner.
Register of Copyrights Marybeth Peters' testimony continues to favor her June 21st proposal to eliminate the compulsory license and replace it with voluntary collective licensing bodies. Her June testimony includes a discussion draft of proposed legislation titled the "21st Century Music Reform Act". See earlier post analyzing this proposal.
She said, "The model legislation has generated a sizable response. They majority of the feedback has praised its goals, namely to increase efficiency and promote the free market, but many interested parties have expressed concern as to its actual implementation."
Comments have included, for example, proposed government oversight of rates by collective licensing organizations, concern over higher rates for more popular songs, concerns about uncertainty around displacing the existing licensing regime, and survival of controlled composition clauses in recording agreements.
Except for her professed disaffection for compulsory licensing as a general matter, Peters' testimony did not address why her proposal would disrupt the marketplace by sunsetting existing licenses, or why the repeal would cover physical product, since the focus of the reform is on digital music licensing issues. The new model would not mandate licensing of cover songs (or a rate) for physical product, which are two bedrock elements of current record industry practices. It would probably inform public discussion if the Register laid out more details on the implications of her proposal.
With respect to the alternate proposal of a blanket compulsory licensing scheme, Peters would "at a minimum" cover intermediate copies made in the course of a DPD, such as buffer, cache and server copies. She also believes that any reform of compulsory licensing should address the issue of overlapping performance and mechanical rights. And she said, "I see no reason why prospective licensees should have to do anything to obtain the license other than serve notice of their intent to use the license and comply with all the requirements of that license."
Peters' testimony noted that past attempts have failed to find consensus around a blanket compulsory licensing solution, although "two points of agreement among the interested parties seem to be a desire to have a blanket licensing scheme with one designated agent and a single notice procedure regardless of the number of musical works to be utilized pursuant to the statutory license." This state of affairs was reflected in the conflicting views of others at the hearing.
The testimony of Rob Glaser, CEO of RealNetworks, advocated replacing the "dysfunctional" song-by-song compulsory license with a "comprehensive statutory blanket license" similar to the blanket licenses administered by ASCAP and SoundExchange. A similar proposal was made in the testimony of Ish Cuebas, on behalf of the National Association of Recording Merchandisers.
Glaser would also like the law to clarify that a stream results solely in performance royalties, while downloads results solely in mechanical royalties. It is interesting that while both sides are squared off around this issue, no one has gone to court to seek declaratory relief as to which rights are implicated by a stream and a download, although in some cases both may be.
Glaser also put forth his complaints about Section 114 compulsory licensing of sound recordings. He asks for a clarification of "interactive service" under the sound recording compulsory license, to clarify that Internet radio based on user preferences falls into the statutory license as long as the user cannot control how often or when a particular artist's work is played. He also wants to equalize sound recording performance royalties so there is a level playing field for all radio competitors.
Rick Carnes, president of the Songwriters Guild of America testified to the "painful facts" of current licensing practices -- that the statutory mechanical licensing rate was not raised from 2 cents between 1909 and 1978, and increases since then to 8.5 cents have not made up for this. He also complained that while publishers have agreed to license subscription-style music on the Internet, there has been no agreement with the record industry on revenue splits, and record companies are currently taking up to 50% of revenues for themselves, leaving little or nothing for the publishers if the service providers take the other 50%. That agreement between the RIAA, NMPA and HFA was made in 2001 -- see agreement and press release.
The songwriter and publisher community (including performing rights societies) have put forth a "uni-license" proposal for one-stop shopping that would pay 16.67% of revenues for composition, but it is limited to subscription services. This would reflect the 2/3 - 1/3 split of 50% between record labels and publishers that we have seen contemplated in many deals.
Other testimony was received from David Israelite of the NMPA, Del Bryant of BMI, and Glen Barros of indy label Concord Records. It's interesting that no one from the RIAA or a major label was there. Certainly there's more to come on this.
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