The Out-Dated Royalty: A Need for Change in the Streaming Age

The Out-Dated Royalty: A Need for Change in the Streaming Age

The digital age has swept away many practices of the past, and ushered in a new era. Gone are the days of visiting Blockbuster on a Friday night to rent a movie, or perusing a local bookstore for the latest bestsellers before a trip to the beach. Instead, lovers of instant gratification scour different streaming services like Netflix, Spotify, and Amazon to find what to watch, hear, and read in moments.

Though the way we view our entertainment has changed, in many ways we have returned to a consumption scheme of the past. Not too long ago we owned much of our entertainment (copies of our favorite songs, movies, shows, and books), but with the advent of personal devices such as iPods, tablets, and laptops, and the now widespread availability of the internet, we have in many ways returned to paying for access to content rather than owning the content itself.^[1] Millions of us now pay streaming services monthly for unlimited access to our music, television, and books, in much the same way we pay for access to concerts and other live performances like ballet and theater.^[2]

In particular, streaming music is convenient and allows us to browse many different songs and albums all at once. And while it has not done away with the sale of individual songs and albums completely,^[3] streaming accounts for a large enough portion of music consumption that artists and creators are taking a stand to assert their copyrights with regards to streamed content.^[4] It may seem easy enough to download or play a song on the internet for free, but listeners should consider how doing so impacts the artists involved, which requires an examination of the current structure of royalty-based compensation.

Copyright ownership is more fragmented then one might think. Songwriters typically own the copyrights to the melody and lyrics of a song, while performing artists usually hold the copyrights to a song’s recording.^[5] A third party often manages the copyrights of both songwriters and performers to track the use of the song more efficiently. ^[6] Thus, music publishers generally control the songwriter’s copyrights, and record labels control the copyrights of the performer. ^[7]

Royalties are paid to copyright holders based on use of the music in question, and are broken down into two categories: first, performance royalties, which are paid for music played on the radio and consist of both songwriting royalties and recording royalties, ^[8] and second, mechanical royalties which are paid for the sale of music, as in the form of CDs. ^[9].

A song played on the radio or through Spotify is a public performance. ^[10] Performance Rights Organizations (PROs) collect the songwriting royalties owed to songwriters and publishers for each pubic performance of a song and distribute these royalties accordingly. ^[11] Current copyright law ensures that the company SoundExchange (which functions as a PRO) similarly collects recording royalties for and distributes them to recording artists and labels when a song is performed digitally, but not when that song is played on the radio.^[12]. This means that where a radio station pays only songwriting royalties on any given song, a service like Spotify pays both songwriting and recording royalties on any streamed song. ^[13]

Because PROs are governed by a consent decree, the rate court (part of the United States Judiciary) sets the rates at which songwriting royalties are paid per performance (digital or on the radio), and the PROs have very limited ability to negotiate this rate. ^[14]. SoundExchange, in contrast, is not governed by a consent decree, and is able to negotiate royalty rates. ^[15] performance royalties are paid proportionally, ensuring that the artist featured on the recording is awarded 45% of the royalty, any secondary artists are awarded 5%, and the owner of the recording’s copyrights receives 50%. ^[16]

Mechanical royalties are set by the government, and are paid to songwriters and artists alike for both music sold and music streamed. ^[17] Because current copyright regulation was enacted before streaming services became popular, and because streaming services are a combination of sale and performance of music, streaming services like Spotify pay both mechanical and performance royalties to copyright holders ^[18] largely based on the number of times that song is streamed through Spotify’s application. ^[19] Many in the music industry feel that this payment scheme has not caught up to the realities of the digital age, ^[20] and that the outdated Digital Copyright law needs to be updated as a whole. ^[21].

In fact, Taylor Swift has in the past withheld her music from Spotify in objection to its royalty payment scheme. ^[22] In this vein, Swift famously took a stand for artists big and small against Apple at the launch of its own streaming service, Apple Music, when the technology giant announced it would not pay artists for streams that occurred during a user’s three-month free trial of the service. ^[23] Swift wanted to withdraw her enormously popular music from the service, noting that “three-months is a long time to go unpaid, and it is unfair to ask anyone to work for nothing. We don’t ask for free iPhones. Please don’t ask us to provide you with our music for no compensation.” ^[24] Because the absence of Swift’s music from the streaming library would be noticeable, Apple agreed to pay the artists during free-trial streams as they would during subscription-backed streams. ^[25]

Perhaps struggles of this kind are only natural as the music industry tries to adapt to the unfamiliar terrain that innovation brings. Though some artists feel that the ability to stream individual songs has damaged the integrity of the album, ^[26] it is difficult to imagine that streaming is not here to stay. If this is a truth that artists must accept, it seems only fair that the laws face the music as well. Many artists and fans support a restructuring of the compensation system in the music industry, and advocate for copyright and royalty regulation that reflects the reality of the digital era. ^[27] This isn’t to say that the burden of restructuring royalties should fall on the government or the artists alone, but rather to suggest that the best way forward is collaborating to construct a mutually satisfactory royalty system that’s caught up with the reality of the digital age.