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Earlier this year, the International Federation of the Phonographic Industry released the latest edition of its annual Digital Music Report. The report contains a treasure trove of useful data and information that should delight many throughout the recording industry.
For example, the report highlights that the music industry has just achieved its best year-on-year performance since 1998. The global trade value of the recorded music industry grew in 2012 — for the first time since 1998. At the heart of that growth was a 12 percent increase in the global sale of music downloads. The report also notes a 44 percent increase in the number of paying subscribers of on-demand music services and references an all-time high finding that nearly two-thirds of Internet users are turning to legitimate services for legal access to digital music online. As traditional music sales decline, overall growth is being driven entirely by digital services.
All of this is good news, but more remains to be done.
To ensure continued prosperity, Congress must act to modernize federal copyright law in a manner that will promote greater licensing efficiency, encourage the continued development of new business models and protect existing music platforms that are driving music industry growth, even against unfair competition.
One easy first step Congress should take is to eliminate the inefficient rate-setting standard that is used to establish performance royalties paid only by Internet radio — and instead simply apply the standard that is used for cable and satellite radio and other music licenses.
The current rate-setting system undeniably turns conventional policymaking on its head. It inexplicably places Internet radio — the newest and most promising form of radio — at an increasingly stark economic disadvantage compared with its leading, better-established digital rivals.
Another item worthy of congressional attention is the compulsory license governing the reproduction and distribution of musical compositions. It has been close to four decades since the mechanical license, as it is more commonly known, was meaningfully updated — just before the widespread adoption of the CD.
Gone are the days of big-box retailers selling CDs. Increasingly, music fans are turning to online music stores to purchase music, and yet changes to the mechanical license have failed to keep pace with changes in technology. Under the current system, online music stores, as well as other prospective licensees, are forced to engage in rather rigid rate-setting and licensing processes that are inefficient and don’t clearly define the full scope of activities covered under the license.
Last month, Maria A. Pallante, the register of copyrights, testified before Congress on both this subject and other aspects of federal copyright law that need to be modernized. A lively discussion ensued but unfortunately there didn’t appear to be much of an appetite on the part of members of Congress to engage in swift legislative action.
Even though the recording industry’s latest numbers provide reason to celebrate, last year’s positive financial returns are no guarantee of continued success. Indeed, success going forward will depend heavily on making legitimate music sites more convenient and enticing than their illegal counterparts. This easily can be accomplished by establishing a robust licensing regime that empowers digital music services to add new features and functionality in a timely manner. After all, recent studies clearly demonstrate that a user-friendly music service that is legally authorized to offer content at a reasonable price point can considerably diminish unwanted acts of piracy.
For their part, digital music services are deeply committed to innovation, customer satisfaction and a healthy music marketplace. In a relatively short time frame they’ve offered consumers enhanced streaming options, introduced music downloads and just recently launched new cloud-based music services. These developments have been met with a great deal of fanfare, but more important — as evidenced by the recent IFPI report — these efforts have contributed significantly to the financial bottom lines of the artists who create the content digital music services distribute.
Looking ahead, the future promises to be even brighter provided the music licensing process continues to improve and keeps pace with ongoing advances in technology.
Here’s to us all doing our part to ensure the good times keep rolling.
Gregory Alan Barnes is general counsel for the Digital Media Association.