Creating a Merit-Based Music Economy: Compulsory or Blanket Licensing for Interactive Subscription Services
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These are interesting times in the music business. Since the Internet blasted into the mainstream in the early '90s, many ways of transferring music online have appeared, from FTP sites to Email attachments, Web sites, and Peer-to-Peer systems such as Napster. The combination of faster connections (especially the increasing popularity of broadband access such as commercial-T1, cable, and DSL) with better data compression (especially the MP3 codec) has made the process quick and easy, and this is changing everything. To most people reading this paper in 2001, this is way old news.

In the midst of this steep S-curve in music business evolution, the legacy of copyright law is obstructing some promising business models and media models for delivering music online. In 1998, the Digital Millennium Copyright Act (DMCA) was enacted to address developments in the online world, but many have criticized it for various drawbacks ranging from content protection to revenue models and user interface constraints.

In particular, the DMCA created a new compulsory license for streaming music online. However, it only covers systems that are not "interactive" (the line between "interactive" and "non-interactive" is less than perfectly clear in the statute, and it is a key issue in several recent lawsuits).

This is important because a compulsory license allows a business to deliver music to listeners without allowing the copyright owner to refuse (the copyright owner is "compelled" to allow the commercial use), so long as the business pays for that use according to a standard, statutory royalty rate. That rate is negotiated among various players in the industry, or arbitrated under government supervision if necessary.

Precedents for Compulsory and Blanket Licenses

The historical origins of copyright have been debated a lot recently, but I think most would agree that the essential intent and justification is to encourage the flowering of culture. It is intended to ensure that authors can benefit from commercial exploitation of their work, not by withholding it from the marketplace. As the U.S. Constitution states: "The Congress shall have power ... to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries" (Article 1, Section 8).

If securing these rights does not lead to the intended progress, then a fundamental social purpose of copyright is betrayed. Compulsory and blanket frameworks are meant to ensure that granting these exclusive rights does in fact promote such progress, by spreading scientific and artistic value widely across society.

One example of an existing music compulsory license is the "mechanical license" that covers songs recorded for a record by a performing artist, but written by someone else. Another similar case is the blanket license arrangement that was created for broadcasting songs on radio, administered by performing rights organizations such as ASCAP, and BMI in the U.S. These blanket licenses require a special "consent decree" by the Department of Justice that exempts them from the price-fixing prohibitions of anti-trust law. And as noted above, now there is a new compulsory license for "non-interactive" online streaming of recordings, defined in the DMCA.

Because of the blanket nature of these licenses, performers may sing any song at a concert, or record it on a commercial record (or radio stations may broadcast a live or recorded version of their song), so long as the standard payment is properly made. Under compulsory license, enforcing payment is a matter of federal law. Under blanket licenses, enforcing payment is a more private matter, but is made more efficient by collecting individual copyright holders' resources together under a single administration.

In both cases, the efficiency of automatic, group-wise royalty management opens the doors to a wide proliferation of music across our society. At the same time it ensures that songwriters can be compensated for their work, which honors the original underlying incentive of copyright. To be sure, both systems have substantial imperfections, in practice. But the same digital technology that could improve the music market could also be applied to administering these licenses, vastly improving the result.

Without compulsory constraints or collective management of copyrights, many of the businesses that proliferate music would have found it very difficult (if not impossible) to operate efficiently. Each song license would have to be negotiated individually, and there would be no guarantee that any particular song would ever be able to be licensed at all, under any conditions.

Fixing the Music Business

I don't think I am alone in thinking much of our popular culture is "broken" in today's society. There are structural reasons for this, driven by the kinds of media and businesses that dominate today's cultural marketplace. But, in the age of interactive networks and database-driven service businesses, suddenly we have new technological options for building a cultural marketplace. Those new services could go a long way toward eventually fixing what is broken.

I believe that, if grass roots music could be more widely successful, that would encourage quality and diversity, and provide the best chance to fix our musical culture.

I also believe that certain kinds of interactive subscription services could provide some of the most uniquely promising ways to empower grass roots artists with a much more fluid marketplace, leading to the flowering of grass roots music.

The service model described here serves both fans and artists, and failing to include the key features would ultimately be detrimental to both.

The remaining obstacles to building such services are increasingly not technological, but instead legislative. They would require either a compulsory license that does not now exist in U.S. copyright law, or a consent decree to exempt an appropriate blanket licensing organization from anti-trust law, in order to become commercially feasible.

This Paper

In this paper I argue for introducing compulsory or blanket music licensing, not just for "non-interactive" transmission online, but extended to fully interactive music subscription services. The goal is to create a fluid, merit-based music market, where value is determined directly by individual fans and artists, and not distorted by the leverage of gatekeepers that mediate the market.

First is a discussion of how the traditional music business currently works, and how its market structure distorts music culture.

That is followed by a description of the current grass roots movement, and the difficulties of providing an alternative to the traditional market.

Next is an explanation of how certain kinds of interactive online music services could substantially improve grass roots success, and create a more merit-based music market.

Finally there is a summary of key obstacles to building such a system, without the suggested compulsory or blanket license existing in some form or another.

I can't vouch for the political or collective processes that will be necessary to produce these changes, or even the specific form the laws might take. That is for experts to deal with, and I'm no expert in those areas. But if we can first agree on the general goal, then we will be better able to express our collective will as citizens, and participate in the process of calling for and bringing about those changes.

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