Creating a Merit-Based Music Economy: Compulsory or Blanket Licensing for Interactive Subscription Services
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Creating a Merit-Based Music Economy:
Compulsory or Blanket Licensing for
Interactive Subscription Services

Dan Krimm
September 2001


This paper describes the structure of the major-label and grass-roots music markets, and examines how the market structure harms the balance of commercially successful music. It then advocates expanding compulsory or blanket licensing of music to interactive music subscription services, which may help correct the market imbalance.

The Introduction refers to the Digital Millennium Copyright Act of 1998 (DMCA), and some precedents for compulsory and blanket licensing of music. Expanding compulsory or blanket licensing to interactive music subscription systems could help empower grass roots music more fully. That could fix many problems with our musical culture caused by the traditional music market, by creating a more merit-based economy for music. The discussion has four parts.

A. The Business of Music Hits and the Star System

The traditional music market is focused too much on hits and the need for artists to become stars in order to succeed. This results from the way mass media shape the music market: by funneling music promotion through one-size-fits-all programming. Broadcast radio in particular imposes a very narrow bottleneck on artists' exposure, along with other mass media (video broadcasting is even worse). Because of these bottlenecks, promotional opportunities are artificially scarce for musicians. That scarcity creates high risk and raises the cost for effective promotion, creating payola and its legal successors.

There are three important ramifications of this risk:
  1. It is self-reinforcing, causing major labels to gamble more and more money.
  2. It provides leverage for major labels to lock up retail record distribution.
  3. It creates the "Muzak Effect" in broadcast radio (the systematic success of "tolerable" music for groups, instead of individuals' "favorite" music).
With their market leverage, labels are able to demand ownership of copyrights to recordings and publishing rights to songs, thereby locking up these artist assets.

This results in the two "Power Pillars" of major label control over the music business:
  1. Controlling promotion through the risky mass media market
  2. Controlling revenue from distribution to consumers
Their whole business is strategized around managing risk, so it is in their interest to sustain a risky music market, even when new technology could provide an alternative.

If the hits model is a risky, all-or-nothing "pole vault to success," then what is needed is a safer, flexible, incremental "stepladder to success" instead. Mass media are structurally incapable of providing this, so we have to look elsewhere for a solution.

B. Grass Roots Music and the Struggle For Artistic Integrity

The grass roots music scene begins to provide an alternative to the mass market. The venue market also shapes the music business, and only small venues are accessible to most independent acts. Small venues have advantages (there are many of them, so more acts can get to perform), and disadvantages (it's difficult to make a significant profit because they are small, and sometimes acts still lose money performing).

In the last 15 years or so, more resources have become available for making inexpensive professional quality records. Having a recording provides independent artists new support for promotion, sales revenue, and bookings/press, but they still can't afford much mass media promotion. There is one mass medium that indie acts can readily afford: a mailing list for flyers and newsletters. The Internet makes them even more efficient, as email lists. However, they still provide only limited promotion, compared to other ways.

The live performance (gig) is the key to success in the grass roots, because it is a tool for synchronizing local promotion with sales. Also it leads to additional promotion and sales not otherwise available. Without booking live performances, neither promotion nor sales fall into place. But, the synergy of performing, promotion and sales required for grass roots success is inconsistent. Because of this, the grass roots strategy is not a true "stepladder." Instead, it remains only a "step stool" at best, even with some incremental improvement with email and Web sites on the Internet.

C. How Mass Customization Could Empower Both Artists and Fans

Internet technology could be used to support a new kind of music service that breaks the Power Pillars of control and would allow grass roots artists to more reliably reach a national/global audience. This new music service would:
  1. Be fully interactive, able to play any song or playlist immediately on demand
  2. Be paid for by a flat subscription fee
  3. Contain a full catalog of all recorded music
  4. Guarantee payments to artists according to how often their music is played
  5. Provide personalized radio-like programs with automatic music recommendations
All musicians must be allowed into the catalog, in order to break the Power Pillar of distribution revenue. But access by itself is not sufficient to empower the grass roots. If it were enough, then just having a web site could be enough for a talented act to reach its full audience (this is not the case, as noted in part B).

The other Power Pillar, promotion, also has to be addressed. This is where "mass customization" comes into play, as an alternative to mass media. Mass media are similar to mass production of the industrial sort; mass customization combines the efficiencies of mass production with the flexibility of customized options. This has only recently become possible, with the abilities of computers to store a database of individual customer profiles and to control automated production of custom products.

Music radio can now also be mass customized. This creates a new possibility for personalized radio that automatically recommends appropriate new music for each individual listener. If these recommendations are taken from the entire catalog of music, instead of just a small set of potential hits, it breaks the promotional bottlenecks of broadcast radio and other mass media. It would entertain listeners with music of their choice, while simultaneously promoting a wide range of new music.

By addressing both of the Power Pillars, this kind of service can behave as a real "stepladder" for grass roots artists. Extending from live performing, they could reach their full appropriate audience affordably over time, based on the merit of their music.

There have been other methods of alternative revenue suggested by many people, but none of them seem to address both of the Power Pillars together, which is necessary to create a merit-based music economy. These alternatives include live performing, advertising/sponsorship, patronage, and voluntary donations.

D. How the Traditional Players Could Stymie the Whole Thing Today

There are several ways major labels and publishers could unilaterally block the ideal system, because of how the copyright law is written in the DMCA.

Labels building their own subscription services would most probably not contain the special features that empower grass roots artists (a full catalog including and paying all artists per play; personalized radio-type promotion over that full catalog, based on merit).

Labels and publishers could also refuse to license their own catalogs to any independent webcasting services that have personalized radio promotion over full catalogs. That would undercut the one-stop value for fans, which is a key value of such services.

Labels could also refuse to license their catalogs to services that use subscription revenue models, thus requiring some alternate business model. This weakens the incentives to provide the best possible service to listeners, since some other customer base would be paying the bills.

And, under the DMCA, non-compulsory licenses do not guarantee a fixed percentage of revenues go back to the artists. Thus, artists signed to labels could have their revenues dramatically reduced under non-compulsory licenses, instead of getting a guaranteed amount through a compulsory framework.


Compulsories could be expanded to fully interactive subscription services, so that independent companies can fully satisfy the fans and empower independent artists. I don't argue for a particular form for compulsories, since there are a variety of choices, and I'm not an expert. It may even be possible for artists to form a group, under a "consent decree" similar to ASCAP and BMI, to collect royalties under a blanket license, without explicitly legislating a new formal compulsory.

Either way, independent artists and their representatives need to form an artist-only group, either to be present at compulsory rate/structure negotiations, or to offer blanket licenses to collect and distribute royalties directly.

In the end, this service model is a win/win solution. Labels should be able to operate with less risk while still targeting the star market, which will never go away. Meanwhile, the middle ground would open up to artists with naturally smaller audiences, without having to gamble on star-level promotion. That would allow a much wider diversity of music to be commercially successful based on its merits. And we would get more quality music in the overall market, which is good for fans both as individuals and as a group.

MOCA addendum

In August 2001, a new bill was introduced in Congress (the Music Online Competition Act, or MOCA) that addresses a number of concerns in the DMCA, including the issues of "ephemeral copies" and digital rights management. Also, importantly, it adds a new "non-discrimination" clause that requires labels to offer licenses to any interactive music service on terms comparable to those provided to their own affiliated services.

MOCA would not necessarily empower grass roots artists. The non-discrimination clause does transfer some gatekeeper leverage from major labels to webcasters. But without a compulsory license to require webcasters to pay all artists fairly, or an artists collective offering a blanket license, webcasters would be in a position of unfair advantage over independent artists. That would not be a solution, but only a changing of the guard. The star system would still be the only game in town, and we would still not have a merit-based music economy.

Also it's not clear that even a blanket license for independent artists would necessarily guarantee that a full-catalog service including all major label artists could be licensed.

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© Copyright 2001 Daniel Krimm
Dan Krimm is a musician who has worked in the online business for 20 years. As a progressive jazz composer/bandleader and fretless electric bassist, he was awarded a National Endowment for the Arts Jazz Fellowship grant in 1984, and produced two albums and a concert video of his own work. He was also the first Webmaster for both Discover Magazine and Consumer Reports Online, and from July 2000 to May 2001 was a Project Manager at Launch Media, Inc., working on the LAUNCHcast personalized radio and video service.