Creating a Merit-Based Music Economy: Compulsory or Blanket Licensing for Interactive Subscription Services
Summary | Contents | Previous | Next


Compulsory licenses have two general characteristics: They compel copyright holders to license their content to anyone running a business of a determined type, and in turn they compel those businesses to pay a standard, statutory fee to use that content, with a guarantee that some well-defined portion is paid directly to the artists.

Rate Structure: However, there are a number of different ways to structure the fees.
  • Set a fixed rate per play of any one song to an individual subscriber, and apply that universally to all plays for all subscribers across all interactive music services.
  • Set a percent of business revenue that is allocated according to song use proportionally.
  • List several separate rates according to different ranges of total revenue (this is the model currently used for broadcast radio blanket licenses).
  • Create a more complex formula with various parameters including revenue, subscriber base, etc., that results in a different rate for each separate business, but according to a known statutory calculation.
Also, it might make sense to include both song copyrights and sound recording copyrights in a single compulsory structure, with a complete breakdown across the various copyright holders. Without both licenses, the music cannot be used, and even if a label licenses recordings, publishers might still withhold licenses to use the songs.

I don't advocate any one particular structure for the statutory rate, however I am concerned that it be set in such a way that businesses are not allowed to squander value too much. If a business were to operate on a very slim profit margin, and the statutory rate were set as a proportion of net profit, then it would be very easy to dramatically reduce the amounts paid to artists. So not all possible structures will benefit the artist properly, by providing a fair rate for use of their work

Independent artists and their representatives need to be included in the negotiation of the structure and magnitude of statutory rates under a compulsory license.

Blanket Licensing under Consent Decree: Some people suggest that, instead of a strict compulsory license imposed by legislation, artists should collect together into a single bargaining unit to offer a blanket license. This would correspond more to the structure of ASCAP and BMI, who operate under a "consent decree" from the Department of Justice. The consent decree exempts them from having to avoid price fixing, which violates anti-trust law, in return for certain restrictions on their operation.

Artists will need to collect together either way: to request a consent decree for blanket licensing, or to participate in rate negotiations for a compulsory license (or to participate in rate arbitrations if negotiations are unsuccessful). In both cases, other parties with conflicting interests, such as publishers, should not be included. And, parties with overlapping interests such as small independent labels might very well be included.

Market Lock: Without being compelled to license their content to interactive subscription music services under terms that allow a fluid market for all artists, the major labels and publishers will be able to extend the Power Pillars to the online world.

These bottlenecks no longer are technologically necessary with online services, as they are in the mass media and physical distribution markets. But with the powers currently granted in copyright law, the big players can unilaterally impose similar bottlenecks on the online market, to their advantage, once again.

The Win/Win Solution: Creating a viable grass roots market actually would not threaten the demise of the star system. Mass media will always exist, even if only as integrated aspects of a full-featured service.

There will always be artists who aspire to the largest audiences and celebrity possible, and there will always be some group of fans that idolizes them. It will always be expensive to promote music to these large fan bases, because there will always be scarcity in the channels to reach audiences of that size, whether those channels happen to run on traditional mass media technology or are integrated into an online service.

The star system will never go away.

However, the star system need 't be the only effective option for artists to build careers with original work. With a stepladder marketplace that works, reaching up from the grass roots, artists would have the option to cruise at a lower level of audience size without having to gamble on an attempt to get to star level.

Artists Win: This would change some things about the major label business. Labels would have somewhat less leverage among "baby bands" that would no longer need them for their own initial career development. Because of this, only artists who had gotten to a substantial level of success would work with majors to bring them up to a full star level of celebrity. These artists would have more leverage to negotiate as business partners, rather than as dependents to the gatekeepers, because there would be much less risk of failure and they would have a workable alternative to the star system.

Labels Win: At the same time, there would be much less failure because majors would be less likely to sign risky acts, and they would not be filling up the mass media channels with so much more than they can handle. In short, much of the risky side of the business would be abandoned to the grass roots market, and the artist development aspect of A&R would be rolled back to simply observing grass roots artists and choosing those that are demonstrably ready to move up to stardom.

Also, labels might still reduce their losses with any "unsuccessful" artists with the incremental use that comes from inexpensive auto-recommendations.

Fans Win: Music fans would get a music experience that is optimum for each of them personally. In the process, they would drive a music market that is diverse and high quality, and the blossoming of musical culture would be enhanced for everyone.

In order for all of this to happen, we need to extend some form of compulsory or blanket licensing to interactive music subscription services. There is a good deal of work to be done to determine the ideal rate structure and negotiate the magnitude, and the full range of interests needs to be included in the process. However, if we don't first agree on the compulsory goal, we may never get there. And that could be one of the most important opportunities the music world has ever squandered.

Summary | Contents | Previous | Next