Music access has changed dramatically in the last decade and business models are clearly trending toward streaming platforms and away from individual purchases. However, our nation’s laws remain severely behind the curve.
This week, before the House Judiciary Committee Subcommittee on Intellectual Property, companies such as Pandora — whose executives make astronomical wealth while short-changing songwriters — claimed that the century-old antiquated laws that dramatically undervalue a songwriter’s work are sufficient, or even preferable, to an actual free market where creators are paid what they are due.
This is for one reason: they are profiting off the backs of songwriters, while many songwriters are barely getting by.
How this is happening is simple. Companies such as Pandora take advantage of the fact that the songwriting and music licensing world exists in the Stone Age, not the Digital Age. Current laws and regulations that govern the royalties paid to the very people who give life to the industry were created in 1909 and 1941. The compulsory licenses and consent decrees that were put into place decades ago were meant to curb potential abuses on the part of the content-holders, however they were not meant to handicap permanently the very people who write the music that millions of people enjoy. Even successful songwriters can barely earn a living because of outdated regulations that never could have anticipated the technological revolution in music access.
Due to these outdated laws, songwriters are paid below market rates which makes it very hard to make a living, let alone thrive as a music creator. The only real remedy for fairness is a free market to create a fair playing field to compensate creators and allow this indispensable industry to grow, not collapse.
In the meantime, legislation has been offered in the House and Senate that would help update the laws governing songwriting licensing. The Songwriter Equity Act updates provisions of the Copyright Act that have prevented modern songwriters from collecting fair market royalty rates for their work.
The first iniquity the SEA addresses is the fact that currently royalties received for a mechanical reproduction, or when someone buys a digital recording, are set at a value well below market. Due to compulsory licenses set before World War I, songwriters garner an arbitrary 9.1 cents when their music is sold — without their consent. Meanwhile record labels, who can negotiate freely and are not beholden to a compulsory license, receive around 81 cents for the same song. Clearly, the system is broken.
The SEA would ensure that the government applies a market-based rate standard when setting licensing rates for the mechanical reproduction, or digital purchase, on sites like ITunes.
The second injustice comes in the form of consent decrees set by the Justice Department in 1941. These negatively affect how much a songwriter is paid when their music is performed, either publicly or over the radio. Due to a faulty valuation system, the courts drastically undervalue these rates.
The SEA would help fix this by allowing the federal courts that set these rates to look at evidence they currently are prohibited by law from considering to determine the proper value.
While SEA will not solve every problem, it will drastically improve the processes that determine what creators are paid to reflect better fair market compensation and will help level the playing field in rate setting proceedings that are currently stacked against songwriters and publishers.
Outside of Congress, more progress is being made. The Department of Justice has begun a review of the consent decrees from 1941 that set arbitrary performance royalty rates.
To understand just how unfair the regulatory burden is on songwriters, we have, for the first time, calculated what not only the U.S. songwriting industry is worth — roughly $2.2 billion — but also what is lost due to unjust government regulations, which is an even larger number –—over $2.3 billion.
More than half of our industry’s value is lost due to unfair government regulation. The elimination or, at least modification of the government-mandated compulsory license and consent decrees in favor of a licensing structure that more closely resembles free market negotiations benefits not only publishers and songwriters but consumers and the music market generally. No one who values either art or the importance of a free and fair market can logically object.
This week, witnesses before the House Judiciary Committee testified that continuing to impose burdens and regulations on the rights of songwriters is necessary for them to survive, however, keep in mind that last year, the co-founder of Pandora cashed out more in stock for himself than his company paid every American songwriter combined.
Songwriting — the very industry that makes online streaming possible — is in jeopardy because of those who unfairly profit from it. Let that fact, and the realities mentioned here, resonate every time you hear your favorite song online.
David Israelite is the president and CEO of the National Music Publishers’ Association .