Copyright Update: Part 2 Digital Music Streaming Issues

This paper was written and presented by Tamera H. Bennett at the 28th Annual Technology Law seminar hosted by UTLaw CLE. It has been edited into multiple blog posts. Enjoy Part 2 below and Part 1 here, Part 3 at this link and Part 4.

While music publishers and record labels are fighting their own issues on getting paid (and sometimes against each other), this series of posts focuses on new media recent legal issues facing sound recording copyright owners.

II.         Types of Digital Music Consumption

The music industry is no longer focused on consumers owning physical product, but rather focused on how consumers consume music. 

A.        Streaming:

The fastest growing area of music consumption is streaming. Billboard 200 Makeover: Album Chart to Incorporate Streams & Track Sales, BILLBOARD, Nov. 19, 2014. This area is growing so fast that for the first time in 23 years, BILLBOARD revamped its algorithms to calculate the weekly Top 200 albums chart to include digital streams and individual digital tracks.

“Internet radio is non-interactive streaming - meaning the user cannot choose the track or artist they wish to hear.”

Streaming means listening to music (or watching a video) in real time, instead of downloading a file to your computer or mobile device and listening to it later. There are two types of streaming: interactive and non-interactive. Both are defined below and are treated differently when it comes to licensing and royalty amounts.  Prior to the Digital Performance in Sound Recordings Act of 1995 (“DPRA”), recording artists and sound recording copyright owners in the U.S. did not have a performance right in digital transmissions such as internet radio, webcasting or satellite radio.   

i.          Non-interactive – Internet Radio/Webcasting/Satellite Radio: 

Internet radio is non-interactive streaming - meaning the user cannot choose the track or artist they wish to hear. The DPRA created a statutory license for subscription-based, non-interactive digital audio transmissions.  17 U.S.C. § 114. In 1998, Congress passed the Digital Millennium Copyright Act (“DMCA”), which expanded the statutory license to include non-subscription, non-interactive digital audio transmissions. License fees, predetermined by the Copyright Royalty Board, are non-negotiable and paid by the internet radio stations, webcasters and satellite radio stations to Sound Exchange (the entity designated to collect the royalties) as a digital performance royalty. 37 C.F.R. Part 380.

Sound Exchange reported digital performance royalty payments to artists and labels of $773 million in 2014 (up 31 percent from $590 million the prior year). These numbers include satellite radio as well as webcaster and internet radio. SoundExchange Wraps Record-Setting Year with $773 Million in Payments to Recording Artists and Record Labels, Sound Exchange, (Jan. 28, 2015).

Pandora and iHeartRadio are the two leading internet radio services in the US.  New players in the Internet radio space include Spotify, Rdio, and iTunes Radio.  Remember some of these providers offer multiple services which may include non-interactive streaming and interactive streaming. Satellite radio, such as Sirius XM, is also treated as a non-interactive service with fees predetermined by the Copyright Royalty Board.  17 U.S.C. § 114.

ii.         Interactive - On-Demand Streaming:

Streaming of content is considered interactive, or on-demand, when the listener can request the specific recording they wish to hear and the digital file is transmitted electronically to a computer or other device contemporaneously with the user's request.  17 U.S.C. § 114(j)(7).  The major on-demand streaming services include Spotify, Beats Music, Google Play Music All Access and Xbox Music.  The latest entry into the market is Tidal launched in March 2015 by artist and entrepreneur Jay Z.  Other offerings include Rdio and Slacker.

“Streaming of content is considered interactive, or on-demand, when the listener can request the specific recording they wish to hear.”

Because of the interactive nature of on-demand services, there is no statutory scheme or Copyright Royalty Board determining licensing rates.  The on-demand services must secure direct sound recording licenses from the owners of the sound recording copyrights in order to stream.  Royalty rates for on-demand services are negotiated between the sound recording copyright owner and the service provider.

How Do You Define Interactive?

There’s not been much litigation exploring the precise definition of “interactive.” We do know allowing users to create music playlists and access to listen to particular audio visual works and their accompanying sounds fit directly into the definition of an interactive service found at 17 U.S.C. § 114(j)(7).  See Capitol Records, LLC v. BlueBeat, Inc., 765 F. Supp. 2d 1198 (C.D. Cal 2010).

Compare the facts to a situation where a webcasting service provides users with individualized internet radio stations and the user rates the songs, artists, and albums.  The Second Circuit affirmed the lower court’s decision finding that voting up or down a song, artist or album on a service is not interactive so long as the user 1) cannot control precisely what song plays, and 2) cannot determine the next song with some amount of predictability. Arista Records, LLC v. Launch Media, Inc., 578 F.3d 148 (2d Cir. 2009).

In Part 3 we will discuss cloud/locker services and the demise of Grooveshark and Mp3Tunes.  You can read Part 1 here.