[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
COPYRIGHT OFFICE VIEWS ON
MUSIC LICENSING REFORM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
JUNE 21, 2005
__________
Serial No. 109-28
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://www.house.gov/judiciary
______
U.S. GOVERNMENT PRINTING OFFICE
21-910 WASHINGTON : 2005
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COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah MAXINE WATERS, California
SPENCER BACHUS, Alabama MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana ROBERT WEXLER, Florida
MARK GREEN, Wisconsin ANTHONY D. WEINER, New York
RIC KELLER, Florida ADAM B. SCHIFF, California
DARRELL ISSA, California LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
Philip G. Kiko, Chief of Staff-General Counsel
Perry H. Apelbaum, Minority Chief Counsel
------
Subcommittee on Courts, the Internet, and Intellectual Property
LAMAR SMITH, Texas, Chairman
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
ELTON GALLEGLY, California JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee ZOE LOFGREN, California
SPENCER BACHUS, Alabama MAXINE WATERS, California
BOB INGLIS, South Carolina MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida ROBERT WEXLER, Florida
DARRELL ISSA, California ANTHONY D. WEINER, New York
CHRIS CANNON, Utah ADAM B. SCHIFF, California
MIKE PENCE, Indiana LINDA T. SANCHEZ, California
J. RANDY FORBES, Virginia
Blaine Merritt, Chief Counsel
David Whitney, Counsel
Joe Keeley, Counsel
Ryan Visco, Counsel
Shanna Winters, Minority Counsel
C O N T E N T S
----------
JUNE 21, 2005
OPENING STATEMENT
Page
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property............................ 1
The Honorable Howard L. Berman, a Representative in Congress from
the State of California, and Ranking Member, Subcommittee on
Courts, the Internet, and Intellectual Property................ 2
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 3
WITNESSES
The Honorable Marybeth Peters, Register of Copyrights, Copyright
Office of the United States, the Library of Congress
Oral Testimony................................................. 4
Prepared Statement............................................. 7
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard Berman, a
Representative in Congress from the State of California, and
Ranking Member, Subcommittee on Courts, the Internet, and
Intellectual Property.......................................... 52
Prepared Statement of John Conyers, Jr. a Representative in
Congress from the State of Michigan and Ranking Member of the
Committee on the Judiciary..................................... 55
Letter from Jonathan Potter, Executive Director, Digital Media
Association to the HonorableLamar Smith, a Representative on
Congress from the State of Texas, and Chairman, Subcommittee on
Courts, the Internet, and Intellectual Property................ 56
Letter from Steven M. Marks, Recording Industry Association of
America to the Honorable Lamar Smith, a Representative in
Congress from the State of Texas, and Chairman, Subcommittee on
Courts, the Internet, and Intellectual Property................ 59
Response from the National Music Publishers' Association, Inc. in
response to the testimony of the Honorable Marybeth Peters,
Register of Copyrights......................................... 62
Statement of Major Songwriting Organizations, the Songwriters
Guild of America and the Nashville Songwriters Association
International in response to the testimony of the Honorable
Marybeth Peters, Register of Copyrights........................ 65
Statement of the Local Radio Internet Coalition in response to
the testimony of the Honorable Marybeth Peters, Register of
Copyrights..................................................... 69
Statement of the Recording Artists' Coalition in response to the
testimony of the Honorable Marybeth Peters, Register of
Copyrights..................................................... 84
Statement of the Television Music License Committee and the Radio
Music License Committee in response to the testimony of the
Honorable Marybeth Peters, Register of Copyrights.............. 86
Letter to the Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property and to the Honorable
Howardd Berman, a Rrepresentative in Congress from the State of
California and Ranking Member on the Subcommittee on Courts,
the Internet, and Intellectual Property from Del R. Bryant,
Broadcast Music Inc............................................ 88
Statement of SESAC, Inc. in response to the testimony of the
Honorable Marybeth Peters, Register of Copyrights.............. 93
Comments of the American Society of Composers, Authors and
Publishers in response to the testimony of the Honorable
Marybeth Peters, Register of Copyrights........................ 98
Letter from the Honorable Marybeth Peters, Register of Copyrights
to the Honorable Lamar Smith, Chairman, Subcommittee on Courts,
the Internet, and Intellectual Property, submitted July 19,
2005........................................................... 101
COPYRIGHT OFFICE VIEWS ON
MUSIC LICENSING REFORM
----------
TUESDAY, JUNE 21, 2005
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:04 a.m., in
Room 2141, Rayburn House Office Building, the Honorable Lamar
Smith (Chair of the Subcommittee) presiding.
Mr. Smith. The Subcommittee on the Courts, the Internet,
and Intellectual Property will come to order. I am going to
recognize myself for an opening statement, then the Ranking
Member, then the Ranking Member of the full Committee.
This is a wonderful turnout this morning. It's nice to see
a lot of familiar faces and a lot of new faces, as well, which
is an indication, I think, of how important the subject at hand
is. Let me recognize myself for an opening statement.
Today, the Subcommittee continues its inquiry into issues
surrounding music licensing. However, instead of identifying
the problems in the music industry, you will hear about a
possible solution that has been suggested by the Copyright
Office.
The music industry has evolved from simple business models
focused around either the distribution of physical items, such
as compact disks or broadcasts on the radio, to a dynamic
digital marketplace where new business models evolve rapidly.
The laws that set out the framework for the licensing of
musical rights in this industry are outdated, and some say
beyond repair. The Copyright Office's idea, therefore,
represents a creative way for how mechanical and performing
rights would be administered in this country.
Since the draft focuses on what the Copyright Office feels
is the best approach to music licensing laws, it does not
address any of the issues that would accompany the transition
to such a system nor does it address the operation of the music
industry before the enactment of such legislation, if that were
to occur. The Copyright Office has not addressed such issues
because it is more important to first determine whether the
system suggested by the Copyright Office is worth considering
than determining how best to accomplish the required
transition.
Some issues that the Subcommittee would need to resolve but
that are not included in the draft include how to handle any
rate disputes that may arise. Should copyright royalty judges'
decisions or other similar processes be used to settle rate
disputes, or should a pure free market approach rule? We have
already seen this issue arise in the context of the Television
Music Licensing Committee's dispute with SESAC that was debated
during the Subcommittee's Public Performing Rights Organization
oversight hearing last month.
Members of this Subcommittee have an open mind on how to
reform American music licensing laws, but not on the need to do
so. Music licensing reform is essential. If legal services are
going to be able to compete with free, they must be able to
quickly offer legal music. That does not mean that the music
licensing laws should be written for the sole benefit of online
services.
For example, some music groups have suggested the creation
of one super-agency to handle all music licensing. Others have
suggested a direct negotiations approach. Whether or not it
makes sense to create new entities will be considered as a part
of the process of developing legislation.
Finally, I would note that for the interested parties,
following the testimony today, that there are seven calendar
days to submit written testimony for the record commenting on
the Copyright Office's draft and their testimony given today
and we very much encourage those comments just so we'll have a
feel for how everyone thinks about the subject.
With that, I'll recognize the Ranking Member, Mr. Berman,
for his opening statement.
Mr. Berman. Thank you very much, Mr. Chairman. Thank you
for scheduling this hearing on what my at least preliminary
look at is a very bold initiative by the Copyright Office. The
Copyright Office continues to serve as a valuable resource on
many different copyright issues, including section 115, and I'm
especially interested in hearing its opinions on improving our
current system of music licensing.
In anticipation of the Grokster decision, I think it's
important to recognize that a problem of--the problem of
rampant piracy over peer-to-peer networks serves as a reminder
of the dire need to address digital music licensing reform.
Piracy harms an industry that provides jobs throughout the
country, including my district, from the recording artist to
the sound engineer to the many businesses that support the full
range of musical arts. In order to enable legitimate online
music distributors to compete with the choice and ease of so-
called free music provided by Internet pirates, we need to give
users the ability to receive their share of music anytime,
anyplace, and in any format while ensuring that the creator
receives his or her rightful compensation.
According to reports of the NDP group, legal online music
sources have gained a solid foothold against file sharing
networks. Though proliferation and success of new digital music
services, such as the Apple iTunes download service, the recent
launch of Rhapsody and Yahoo portable subscription services,
and the recent success of new physical formats, such as dual-
disk CD/DVD all speak to innovation in the distribution
mechanisms for music content. However a fundamental question
remains as to whether the current licensing system or the one
being proposed gives these new music products and services a
realistic opportunity to compete and overcome the free
alternatives provided by the peer-to-peer networks.
Rewards for innovation are hard enough to come by for the
songwriters who oftentimes are the first to create but the last
to be paid. But the unfettered distribution of music content
over file swapping services prevents them from receiving a
major source of potential revenue. Our focus must remain on
providing rightful compensation to those that provide our
music.
Philosophically, the idea of repealing any of the
compulsory licenses, 114 or 115, has great appeal and is,
pardon the expression, music to my ears. The idea that the
market would be required to yield fair value for a musical work
has long been the hope of many copyright owners. However, at
the same time, we need to be mindful of the consequences that a
free marketplace may have on online music distribution
services. They compete in a marketplace where the market price
of the pirated music is free. Therefore, we must facilitate
legitimate digital online music services in order to combat the
pirates and reclaim the treasure.
I look forward to hearing from the Register of Copyrights
to provide further details of how this draft would address some
of the practical issues, such as a transition period and
creation of a fluid marketplace to begin leveling the playing
field for music services with those of Grokster and Kazaa.
Thank you very much, Mr. Chairman. I yield back.
Mr. Smith. Thank you, Mr. Berman.
The gentleman from Michigan, Mr. Conyers, the Ranking
Member of the Judiciary Committee, is recognized for an opening
statement.
Mr. Conyers. Thank you, Mr. Chairman. I am happy to be here
and to see our Register of Copyrights with us to make a major
presentation this morning.
I look out in the audience and the gang's all here. This
could be a potentially significant discussion that we have
amongst ourselves, and so I'm happy you're doing this.
Could I just indicate for the record that I'm weighing in
on the side of a narrow redrafting of section 115. It seems to
me that the larger the proposals around this bill get, the more
dangerous this is going to become to some of those who are in
the music business.
I raise a small flag of recognition to the songwriters in
this music industry who are paid less than anybody else I know
for their creative works and I am hoping that we will be able
to retain the ability of these writers to negotiate a fair rate
for their musical content. While a rate court would appease
some seeking a quick resolution of royalty disputes, it seems
to me that private negotiations are still the most appropriate
forum for these circumstances, and so I am happy to add these
comments and look forward to the witness's contribution. Thank
you.
Mr. Smith. Thank you, Mr. Conyers.
With that introduction, other Members' opening statements
will be made a part of the record, and may I ask our witness to
stand and be sworn in, please. Would you please raise your
right hand.
Do you swear that the testimony you are about to give is
the truth, the whole truth, and nothing but the truth, so help
you, God?
Ms. Peters. I do.
Mr. Smith. Thank you. Please be seated.
Marybeth Peters became the United States Register of
Copyrights in August 1994. From 1983 to 1994, she held the
position of Policy Planning Advisor to the Register. She has
also served as Acting General Counsel at the Copyright Office.
Previously, Ms. Peters, from 1986 to 1995, was a lecturer in
the Communications Law Institute of the Catholic University of
America's Law School, and previously served as Adjunct
Professor of Copyright Law at the University of Miami School of
Law and at the Georgetown University Law Center.
Ms. Peters is the author of the General Guide to the
Copyright Act of 1976. Ms. Peters received her undergraduate
degree from Rhode Island College and her law degree with honors
from the George Washington University Law School.
Ms. Peters, we welcome you today. We look forward to your
testimony, and as we discussed previously, because you are the
only witness, please feel free to take more than the 5 minutes.
We understand you'll be somewhere between five and ten. That'll
be great. Whatever time you need, we're interested to hear what
you have to say, and please proceed.
TESTIMONY OF THE HONORABLE MARYBETH PETERS, REGISTER OF
COPYRIGHTS, COPYRIGHT OFFICE OF THE UNITED STATES, THE LIBRARY
OF CONGRESS
Ms. Peters. Mr. Chairman, Mr. Berman, Members of the
Subcommittee, thank you for asking me to testify on my
recommendations on how to facilitate the licensing of music by
reforming section 115 of the Copyright Act, the compulsory
license for the making and distribution of physical
phonorecords and digital phonorecord deliveries of nondramatic
musical compositions.
Let me start by contrasting how public performance rights
and the reproduction and distribution rights of music are
licensed. Songwriters and music publishers license public
performances through three Performing Rights Organizations,
PROs--ASCAP, BMI, and SESAC. Virtually every song that anyone
could ever wish to license is in its repertoire, in the
repertoire of one of the three, which offer blanket licenses
for public performances of all of the songs in their
repertoires.
In contrast, a record company or digital music service that
wishes to obtain a license to reproduce and distribute
phonorecords of a musical work must obtain a separate license
for each musical work it wishes to license. The license must be
obtained directly from the music publisher or, in many cases,
the agent, the Harry Fox Agency.
Harry Fox claims that it licenses over 90 percent of the
commercially significant music distributed in the United
States, but the Digital Music Association claims that Harry Fox
licenses only about 65 percent of, quote, ``available music.''
Whatever the figure may be, it seems clear that the Harry Fox
Agency can license only a fraction of the works licensed by the
PROs.
Last year in its testimony, the National Music Publishers
Association stated that Harry Fox's available catalog is well
in the hundreds of thousands of musical works. In contrast, at
a hearing last month, BMI stated that it oversees a repertoire
of more than 6.4 million musical works. ASCAP testified that
there are millions of millions and millions of works in its
repertoire.
Thus, it's relatively easy for a digital music service to
clear the rights to publicly perform any and all nondramatic
musical works. It's not quite one-stop shopping, but it
literally is three-stop shopping.
In contrast, it's virtually impossible to clear the
reproduction rights for all such works, no matter how many
stops you make. Unlike the public performance right, the
reproduction and distribution rights are subject to section
115's compulsory license. As a practical matter, section 115
simply sets a ceiling on the rates that can be charged for the
making and distribution of phonorecords and licenses are
actually obtained from the music publisher, Harry Fox or
another agent.
These differences in the licensing regimes for public
performances and for reproduction and distribution have only
recently created difficulties due to the rise of digital music
services, which aspire to be celestial jukeboxes that can
provide you with performances or copies of any song you may
wish to hear. Digital music services need to clear reproduction
rights for all songs. While they can fairly easily obtain
blanket licenses from PROs, obtaining the reproduction and
distribution rights has proved to be extremely difficult.
The second major hindrance to music licensing for digital
transmission is that almost all--almost any kind of digital
transmission of music involves the implication of both rights.
PROs will assert a right to license and receive royalties for
the performance right, and Harry Fox and music publishers will
assert a right to license and receive royalties for the
reproduction and distribution rights. And in many cases, both
rights are, in fact, implicated.
This is a problem because licensing of music is today
divided into two separate markets, one for public performance,
one for reproductions and distribution. This pits two different
middlemen who represent the same copyright owner against each
other. Each wants and demands a piece of the action. But
whether or not two or more separate rights are truly implicated
and deserving of compensation, it seems inefficient and unfair
to require a licensee to seek out two separate licenses from
two separate sources in order to compensate the same copyright
owner for the right to engage in a single transmission of a
single work.
There are no such difficulties when it comes to the
licensing of rights in sound recordings embodying the same
musical work, and that's because record companies, unlike music
publishers, have not split up the rights and engaged separate
middlemen to exploit separate rights. They issue a single
license to cover everything.
Because of this, section 115 needs to be reformed to ensure
that our music industry can continue to flourish in the digital
age. The question is not whether to reform section 115, but
how.
One solution would involve expansion of the compulsory
license to cover all the rights necessary to make digital
transmissions, and that is still worth exploring. But I am
convinced that I was right last year when I told you that, as a
matter of principle, I believe that the section 115 license
should be repealed and that licensing of rights should be left
to the marketplace, most likely by means of collective
administration.
The Copyright Office has long held that statutory licenses
should be enacted only in exceptional cases, when the
marketplace is incapable of working, and it is worth noting
that the United States is virtually alone in having a
compulsory license for phonorecords. The rest of the world has
managed to resolve music licensing issues without compulsory
licenses, and most frequently by collective licensing.
We should do the same. We should let the licensing of
reproduction and distribution rights take place, for the first
time in our history, in the marketplace. We should do so by
building on the strong record that our PROs have built in
issuing blanket licenses for performance rights and allow the
PROs to do the same for the reproduction and distribution
rights.
I don't have time to describe all of the details in our
proposal, but in my written testimony and in the accompanying
draft legislative text with its section-by-section analysis,
the details are provided.
In a nutshell, my proposal would convert the PROs to MROs,
Music Rights Organizations, and give them the right to license
the reproduction and distribution rights. It would require them
to offer what is, in effect, a uni-license, a unified license,
a single blanket license for digital transmissions that cover
all three rights--public performance, reproduction, and
distribution of phonorecords.
Thank you.
Mr. Smith. Thank you, Ms. Peters.
[The prepared statement of Ms. Peters follows:]
Prepared Statement of Marybeth Peters
Mr. Smith. I'll recognize myself for some questions, and
the first--and maybe I should comment, this is a wonderful
turnout on the part of Members, as well. That's how important
the subject is and how much we appreciate your testimony.
Ms. Peters, some of the industry groups have recommended or
advocated some type of a super-agency instead of your proposal.
How efficient would that be or not be, in your opinion?
Ms. Peters. Well, I would actually oppose that at this
point in time. The one thing it does do is it would allow one-
stop shopping, but it would impose another layer of
administration and perhaps another layer of transaction costs,
and I think there would be an antitrust concern. It could
reduce competition. So at this point in time, I would not
necessarily favor going that way.
Mr. Smith. Okay. Suppose our goal was to have high revenue
and low overhead. What would be the most efficient licensing
system that you would recommend, the one--go on.
Ms. Peters. I would suggest that it's the one that I
propose. [Laughter.]
Mr. Smith. Okay. Why would that increase revenue and reduce
overhead?
Ms. Peters. Because you would be able to license all works,
and because all users of digital music would have PROs to go
to, or MROs to go to and get what they needed, I think it would
enable a lot more legitimate use of music and bring in more
revenue.
Mr. Smith. Okay. Speaking of MROs, under your proposal, how
many MROs do you think would exist? Would it be four or would
it be 40?
Ms. Peters. Let's put it this way. It is possible that
there could be many MROs, but I would suggest that it would be
unlikely. There are expenses in setting up an MRO. In fact,
today, other MROs or PROs could have, in fact, developed, but
they haven't. In the performing rights area, it went from 1914
until 1939 before a second one showed up in the form of BMI. So
I think that it's unlikely.
In the mechanical rights area, technically, there may be
several, but there's only one predominant or Collective
Licensing Organization, the Harry Fox Agency. So I have no
reason to believe that we would have a proliferation of MROs.
Mr. Smith. Ms. Peters, what do you think we need to learn
from what other countries' experiences have been with music
licensing? What has worked in other countries, what has not
worked, and does that influence your recommendation?
Ms. Peters. A number of countries actually have--the PROs
have combined the reproduction right with, in fact, the
performance right. That is a plus. I do have to say that in
other countries, they have different problems that they are
struggling with. But with regard to administering both rights,
there are many who actually do administer both rights.
Mr. Smith. One further question. This gets into a subject
that is still contentious to a lot, and that is royalty rates.
If royalty rates cannot be established by private negotiations,
I know you favor some form of binding arbitration, but why
would that be the recommendation?
Ms. Peters. Well, actually, I think what we would basically
feel is that the marketplace should--that we should attempt to
use the marketplace, and if, in fact, it turns out that there's
a problem, then maybe you turn to, you know, a consent decree
with a rate court. But I don't think that you leap there. And
there are alternatives. There's the copyright royalty judge
system that you could look at if, in fact, a problem developed.
But at this point in time, I would actually favor letting the
marketplace try to work.
Mr. Smith. I was just going to say, when it comes to
royalty rates, you still prefer the free market approach,
letting that be negotiated rather than imposed by the
Government----
Ms. Peters. Yes.
Mr. Smith. --or by other entities? Okay.
Last question. You made a curious statement that I thought
was a valid statement in your written testimony. You said that
you thought the current system, which is to say section 115,
quote, ``inhibits the music industry's ability to combat
piracy.'' I thought it would be interesting to hear why you
thought that was the case.
Ms. Peters. It actually goes back to my first answer to--
the answer to the first question. If it's too difficult to
obtain the license, then people might use the works without
permission and that actually increases unauthorized
distribution of musical compositions. So for me, in order to
decrease piracy or to take away the excuse that, well, I
couldn't get a license, you need an efficient system in place.
Mr. Smith. Okay. Thank you, Ms. Peters.
The gentleman from Michigan, Mr. Conyers, is recognized for
his questions.
Mr. Conyers. Thank you, Mr. Chairman, and thank you for
being with us today, Ms. Peters.
Where does the--in your view, the concept of remuneration
come in and how would it be affected by the proposal in the
draft that you have before us for songwriters?
Ms. Peters. My perspective would be a blanket license that
would be negotiated in the marketplace. The piece that we have
been very critical of over the years is that the existing
section 115 sets a ceiling and people bargain down from the
ceiling. I don't like seeing a ceiling. I notice that the
songwriters said, well, they would like a floor. You can't go
below a particular level. Well, that may be true, but the
ceiling, in fact, is a problem.
Mr. Conyers. You dislike ceilings, but not--you don't feel
too bad about floors.
Ms. Peters. Well, basically, the songwriters were saying,
no matter what, we should make sure that we have a decent
royalty rate. I care about songwriters. It's the creator that
we have to make sure that we take care of, and I thought my
proposal was, in fact, increasing the ability of songwriters to
get additional money. We know that songwriters make more money
through the performance right and from PROs than they do from
the administration of the mechanical compulsory license.
Mr. Conyers. Is the proposal you have a narrower group of
changes as opposed to some of the other proposals out? I notice
that some of my colleagues on the Committee have weighed in on
115 in earlier times.
Ms. Peters. If you are not going to abolish the compulsory
license and your choice is to reform it, then I strongly
recommend reforming it on a blanket license-type basis. I think
there was agreement when we were overseeing discussions last
summer that the 114 blanket license worked much more
efficiently than the title-by-title, music publisher-by-music
publisher system.
Mr. Conyers. I would like to just thank you very much for
moving us along in this direction and ask the Chairman, I
assume that we are going to have additional hearings and you
will be hearing from the ASCAP, BMI, SESACs of the world on
this same subject, Mr. Chairman?
Mr. Smith. Mr. Conyers, if you would yield, we have had two
hearings involving the witnesses whom you have just mentioned
and I am sure there will not only be additional hearings, but
discussions on the subject, as well.
Mr. Conyers. All right. Thank you very much.
Mr. Smith. The gentleman from Virginia, Mr. Goodlatte, is
recognized for his questions.
Mr. Goodlatte. Thank you, Mr. Chairman.
Ms. Peters, welcome. Do you believe that providing for
courts to resolve disputes over royalty rates for public
performances has worked to decide those rates when the private
parties cannot agree?
Ms. Peters. You're talking about the rate courts and the
consent decrees?
Mr. Goodlatte. Right.
Ms. Peters. Yes.
Mr. Goodlatte. If Congress adopted your idea to allow MROs
to license reproduction and distribution rights for
phonorecords, do you believe that applying such a rate dispute
mechanism would be useful for those licenses, as well?
Ms. Peters. It may be. We actually have had a short time to
talk to the parties, but if there's one thing that they
vehemently disagree about, it's that issue. So I guess for me,
I would like to see if, in fact, there was a problem that
developed and if, in fact, it did develop and the Antitrust
Division of the Department of Justice felt the remedy was, in
fact, an expansion of the consent decrees to cover rate courts
in this area. Then that would be the way to go.
Mr. Goodlatte. How would that--would you then have to come
back to the Congress for additional legislation----
Ms. Peters. No----
Mr. Goodlatte. --or would we be looking at a court
expanding its own jurisdiction?
Ms. Peters. Yes. You would be looking at an expansion of
the existing consent decrees if, in fact, it turned out that
there was a problem with regard to monopolistic practices.
Mr. Goodlatte. All right. In order for providers to offer
legitimate online music services and new physical music
products to compete with illegal services, these providers need
certainty that they will be able to license the reproduction
and distribution rights to all music with greater ease. What
provisions in your plan would create more certainty that these
licenses would be more readily available to these legitimate
music services and products?
Ms. Peters. Actually, we chose the PRO model because they
serve all comers and you have the license no matter what. You
work out the details later. I think that was the model that we
wanted. All people who wanted licenses could get them. The
details, you know, might come later, but you still could, in
fact, use the work.
Mr. Goodlatte. And you think that would be easy enough, and
you testified to the Chairman that you don't envision having
too many of these organizations?
Ms. Peters. Right. That is my anticipation. I will just
cite that I was on the website of some of the PROs and they've
got licenses for podcasting in many of the new forms of making
works available on the Internet, so I have faith that that
would be handled.
Mr. Goodlatte. Do any of the provisions of the consent
decrees operating in the performance rights realm help to
create this kind of certainty for the licensing of performance
rights?
Ms. Peters. I have to say I'm not an expert on the consent
decrees and I'm really--we can look into that answer and get
back to you on it, but I don't feel comfortable answering it
right now.
Mr. Goodlatte. Well, that would be fine, Mr. Chairman, if
she could be allowed to do that. I would certainly be
interested in having your additional thoughts on that subject.
Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Goodlatte.
The gentleman from California, Mr. Berman, is recognized
for his questions.
Mr. Berman. Well, Ms. Peters, thank you very much for your
very bold proposal. I think it's--in a way, I like the idea of
starting off with the, almost the revolutionary and then,
unlike Iraq, try to see what the consequences are beforehand.
I want to press you. I guess both the Chairman and Mr.
Goodlatte raised this issue. But why in the world that you are
proposing will the MROs look more like the Performance Rights
Organizations, three, using blanket licenses----
Ms. Peters. Right.
Mr. Berman. --than--I mean, nothing in your proposal would
require, would put a limit on the number, and nothing in your
proposal would require blanket licensing, as I understand it.
Ms. Peters. That's right.
Mr. Berman. Why would it look more like the PROs than like
the situation we now have with the mechanical license? What I
mean is just--I mean, the PROs developed in a non-digital
world.
Ms. Peters. That is right, but they've adapted to a digital
world.
Mr. Berman. Yes. Why wouldn't we be more likely to see a
proliferation of publishers who decide to be their own MRO, in
effect?
Ms. Peters. Let me start with, yes, they could. Our
proposal doesn't necessarily require that in the end there will
be a blanket license, but a blanket license must be offered in
our proposal. So from my perspective, if you look at what has
happened----
Mr. Berman. A blanket license----
Ms. Peters. Must be offered----
Mr. Berman. To----
Ms. Peters. Any----
Mr. Berman. --for a licensee to utilize the reproduction--
--
Ms. Peters. Yes.
Mr. Berman. --performance----
Ms. Peters. Yes.
Mr. Berman. --the whole bundle of rights----
Ms. Peters. Yes.
Mr. Berman. --must be offered----
Ms. Peters. It must be offered.
Mr. Berman. --at a rate determined through negotiations
between the license----
Ms. Peters. Right.
Mr. Berman. --between the MRO and the licensee----
Ms. Peters. Right. And it's possible, just like today----
Mr. Berman. --and if they haven't negotiated it, with a
dispute resolution mechanism to essentially set the price, the
fair price.
Ms. Peters. Right.
Mr. Berman. Okay. Go on now.
Ms. Peters. What I was actually going to say is based on
the experience of the PROs, it is much cheaper to administer a
blanket license, and although they are required to do program
licenses, those are administratively difficult. So it would
seem to me--now, you have to know my entire career is in the
Government, so I have never worked in the real live business
world, but it would seem that the blanket licensing would be
the most efficient way. PROs, and I think even the Harry Fox
Agency, try to give the composer and the music publisher as
much of the money as they possibly can. The problem with HFA is
it's a title by title. So it seems to me not to make much sense
to think that a PRO, if they have this, would, in fact, choose
not to, in essence, push the blanket license.
Mr. Berman. And again on the notion of why, in the context
of now having the--why will songwriters and publishers--I guess
they think the answer would be they get a better deal this way.
That's why they would----
Ms. Peters. Hopefully, yes, and----
Mr. Berman. --rather than become their own MRO----
Ms. Peters. Right, and in the PRO scenario, there is, in
fact, a direct payment to songwriters. It's 50 percent to
publishers, 50 percent direct payment to songwriters.
Mr. Berman. All right. Now, talk about this issue of the
consent decree, that is, if they're still allowed after--no,
never mind. [Laughter.]
Every 4 years, we'll be back. Explain a little more slowly
for me where the consent decree comes into this as opposed to
us legislating an alternative dispute resolution mechanism.
Ms. Peters. Two of the PROs are currently subject to a
consent decree----
Mr. Berman. Right.
Ms. Peters. --with regard to the performance right, and the
question is what happens vis-a-vis that consent decree? Should
you add these additional rights to what they can do? And we
actually tried to start a conversation with the Justice
Department, but we only were able to contact the Antitrust
Division in the last few days. So we're not sure how all of
this would come out, but we think that--or we hope that the
Antitrust Division would be persuaded that our proposal does
not raise serious antitrust concerns and there really wouldn't
need to be an adjustment at this point in time. But if, in
fact, it turned out that, in practice, then you could expand
the consent decree to cover the additional rights.
Mr. Berman. And what do we do during the transition period?
Ms. Peters. The transition period----
Mr. Berman. From the passage of the legislation to----
Ms. Peters. Until the point where you realize it's broken?
I'm hoping it's not broken. I'm actually----
Mr. Berman. Well, the parties don't come together. You get
relatively little privately negotiated and now you have to deal
with the mechanism for setting a rate. What happens during that
interim period?
Mr. Smith. The gentleman from California is recognized for
an additional minute.
Ms. Peters. I'm not totally sure. Maybe there are dispute
resolution clauses that could be put in the contracts, or as
this is happening the Antitrust Division could start talking
with the parties. I don't have the ultimate answer.
Mr. Berman. And actually, you could, if you knew the way it
was going to be settled--well, the problem is you don't, but if
you knew how this was going to be settled, the obligations
could accrue and then the amount of money owed could be
determined later. That's done a lot of times----
Ms. Peters. Well, I was assuming that, that you can always
get the license and worry about what you owe later. But for
people, that doesn't give much comfort, not knowing what
they're going to owe.
Mr. Smith. Thank you, Mr. Berman.
The gentleman from Florida, Mr. Keller, is recognized for
his questions.
Mr. Keller. Well, thank you, Mr. Chairman, and thank you,
Ms. Peters, for being here today. I have read your complete
testimony and I've also read various memos and other items from
industry members and I'm reminded of the many media reports of
identical twins who speak their own language which they
understand but nobody else knows what the hell they're talking
about. [Laughter.]
Ms. Peters. I understand that.
Mr. Keller. So I'm going to simplify things and walk you
through. Let me tell you what I do know about children, as
someone who has two kids in elementary school. This is what I
know about 10-year-olds in fourth grade. They don't want to pay
$18 for a CD that has one hit song and 11 crappy songs. They
don't want to break the law by illegally downloading because
they've heard that you could be sued or even sent to jail. And
they kind of like MTV videos.
So with that in mind, the ideal situation for that 10-year-
old and fourth grader would be a DVD/CD, one on one side, one
on the other, that has the top 12 songs of the current top 40
along with the music videos for their songs. That, I think, may
be the future for these kids.
So some creative entrepreneur comes around and he wants to
distribute this DVD/CD combination and play by the rules. He
wants it in all the record stores and Wal-Marts throughout
America. He wants to do it in a way that is legal and quick and
that fairly compensates the copyright owners. Under this
scenario, I want to see how he would go about doing that under
existing law versus your proposal.
So let's start with the CD side of it. He wants to get the
rights to these 12 songs on the CD. Under existing law, I would
imagine his first stop would be with the Harry Fox Agency,
since you've testified they have 65 to 90 percent of the market
share, is that right?
Ms. Peters. Yes, and if it's the top ten or 12, they
probably have it.
Mr. Keller. Okay. And----
Ms. Peters. So they would go to Harry Fox to get the
reproduction and distribution right, and at that point, if all
he's doing is making the CD----
Mr. Keller. Right.
Ms. Peters. --the question would be, where is he getting it
from? If he's downloading it from an online service, or did he
buy the CD, whether the performance right is implicated depends
on how he gets----
Mr. Keller. Okay. Let's say it's just the mechanical
licensing rights we're talking about----
Ms. Peters. Okay, we----
Mr. Keller. --and let's say that ten of the 12 songs, we
can get from Harry Fox under the existing scenario. He has to
track down the other two licensors of music publisher rights?
Ms. Peters. Right.
Mr. Keller. And that could take a while?
Ms. Peters. It depends. If they're top songs, I would think
that the name of the publisher would be on the album or it
would--the data would be available and they could contact the
publisher.
Mr. Keller. Under your proposal, would it make it any
easier to track down those licensors other than Harry Fox, or
would that essentially stay the same?
Ms. Peters. Well, if it's a blanket license, there would be
several places that you would go to clear for all of the songs.
The whole purpose is that in the PROs, if you get the three
licenses, you're essentially covered for everything, Even if,
in fact, you can't find the copyright owner. The way it is
today, you could use the statutory license by coming to the
Copyright Office, looking up the records to see whether or not
it was registered. If it was registered, then you would serve
or you could contact that publisher. But you also have to deal
with the record company, for the rights in the sound
recordings.
Mr. Keller. But let me go on because I have got some
follow-ups.
Ms. Peters. Okay.
Mr. Keller. So we've managed to now track down the
appropriate people, the licensors of all these 12 songs. Under
existing law, there's a compulsory license. So in other words,
as long as I pay the appropriate amount of money, I can use
that song.
Ms. Peters. If you follow the terms and conditions----
Mr. Keller. Right.
Ms. Peters. --in the statute or you get a modified license
from the publisher.
Mr. Keller. Now, under your proposal, you are talking about
possibly doing away with the compulsory licenses----
Ms. Peters. Right.
Mr. Keller. --so the songwriter may say, you know what? I
don't want my song listed on that compilation CD, is that
right?
Ms. Peters. If, in fact, it were part of a PRO, no, they
couldn't, because it would be required to be offered on a
blanket basis.
Mr. Keller. So as many licenses would still be available?
Ms. Peters. The truth is, in certain circumstances, maybe
the songwriter could say no. But most songwriters want to make
money, so most songwriters want to license.
Mr. Keller. Okay. So tracking down all these people and
making sure they're appropriately paid, do you think your
proposal would make that process on the CD side any quicker
than it exists right now?
Ms. Peters. Personally, yes.
Mr. Keller. And that's because of the blanket licensing
issue when you----
Ms. Peters. And going to one place.
Mr. Keller. Okay. Now let's flip over the CD to the DVD
side----
Ms. Peters. The truth is, if it were a mechanical and Harry
Fox did, in fact, represent all those people----
Mr. Keller. Right.
Ms. Peters. --it could be one-stop shopping with Harry Fox,
too.
Mr. Keller. Which would be ideal. Now, let me ask, as a
follow-up to that, let's say Harry Fox has it all, let's say
100 percent of all these songs, and we do away with the
compulsory license. What's to keep them from charging whatever
they want to charge?
Ms. Peters. The marketplace.
Mr. Keller. But there's no competitor. They have 100
percent of the songs. I mean, what's to keep them from saying,
you know what? I'm going to charge you three times that or take
a walk.
Ms. Peters. They could try. I mean, it's really like, as
ASCAP and BMI and SESAC negotiate with the broadcasters, they
have all the music.
Mr. Keller. Okay. Just one final question, Mr. Chairman.
Mr. Smith. Without objection, the gentleman is recognized
for an additional minute.
Mr. Keller. And I'm sorry, this is a harder question, but
you flip over that CD. Now we're on the DVD side and you want
to get the rights to those corresponding music videos. Tell me
how, if any, there would be a difference between existing law
and your new proposal.
Ms. Peters. Actually, we don't address music videos. Those
are audio-visual works, not just musical compositions. There
are sync rights, synchronization rights, that are involved
that--they are handled by music publishers. So there is more
licensing involved when you're making a music video, separate
licenses.
Mr. Keller. And whatever those complications are, and I
understand there are many, are not going to be affected by what
you are suggesting?
Ms. Peters. No.
Mr. Keller. Okay. Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Keller.
The gentleman from Virginia, Mr. Boucher, is recognized for
his questions.
Mr. Boucher. Mr. Chairman, thank you very much, and I want
to commend you for your persistence in holding a series of
hearings and giving in-depth consideration to the need for
legislation that will remove the barriers that currently
inhibit the ability of digital media companies to use the
Internet in order to compete very successfully with peer-to-
peer file sharing, and I think we all acknowledge that need.
And I'm very impressed with the efforts you've undertaken, Mr.
Chairman, to help us achieve that goal.
And Ms. Peters, I want to commend you for your longstanding
work in this area also and what I think is a very thoughtful
report. You've done a first-rate job with this. I want to ask
you just a couple of questions about some of your
recommendations.
I have listened very carefully to the conversation
regarding your preferred alternative, which is that section 115
be repealed and that we basically trust the market in order to
agglomerate the various songwriter-publisher interests, and
that we also trust the market in order to set a fair rate. And
I have some concerns about both of those components. I am a
little bit worried that, notwithstanding your projection, that
what we would see is a small number of Music Rights
Organizations arise in order to agglomerate and license these
rights, that what we might end up seeing is dozens of them, and
if that were to happen, the digital media companies would be
placed at a severe disadvantage in order to have to negotiate
separately with dozens of agencies, some of which would have
some songs, some of which would have others.
I guess there is no way to know at this juncture whether
your projection is right--we would hope that it is--or whether
the eventuality might prove that dozens of these rights
organizations arise. And so, Mr. Chairman, I would simply note
a concern with regard to that and recommend that at some future
hearing on the subject, we invite all of the various externally
interested parties and get their opinion on how they think that
particular part of the market would arise.
The other concern I would note, Ms. Peters, relates to the
rate. Mr. Berman engaged you in a very thorough discussion of
that subject. I won't reprise that except to note that I really
don't share your confidence on several points.
First of all, I have some real doubts that the Department
of Justice would, in fact, seek to extend the consent decrees
in order to provide a rate backstop. I think it would be better
if we considered providing that backstop directly through the
legislation and I would be very interested in hearing what
other witnesses will have to say at future hearings concerning
that possibility, and I know you've acknowledged the potential
for doing all of this in your testimony.
So let me depart from section 115 and take just a moment to
talk about a few other things also within the general sphere of
effective music licensing that will make it easier for the
lawful companies to compete with the unlawful. You performed
another valuable public service several years ago when in
response to section 104 of the Digital Millennium Copyright
Act, your office studied a number of questions. And then you
published what I thought was a thoughtful and highly
constructive report that made a number of recommendations.
One of those recommendations is that server copies,
including buffer copies and other ephemeral copies that are
made in very large numbers through the act of streaming online
and digital webcasting be declared to be fair use. Your
interpretation of the 104 report is that those ephemeral
copies, buffer copies, et cetera, are, in fact, fair use, but I
think you suggested at the same time that we codify that
principle just to make sure that the ultimate interpretation by
the courts and others was consistent with your view. Do you
still make that recommendation to us?
Ms. Peters. Actually, we looked at it with respect to 115
and we certainly said that if you are amending section 115,
which is the compulsory license, that all of that activity
should be encompassed within the compulsory license and in
certain areas that when, in fact, what you have is a licensed
download and that the performance is simply to accomplish that
download, we didn't see any separate economic value. One of the
things that----
Mr. Boucher. In the ephemeral copy or the buffer----
Ms. Peters. In the ephemeral copies.
Mr. Boucher. Right.
Ms. Peters. Now, one of the things about our proposal is
that we can argue long and hard about the value of those and
whether they are implicated and we should pay for them. By
putting the rights together, it really takes away that stress.
But yes, in general, we stick with our thought that when you
have a licensed activity and you have copies that are made or
incidental performances--you can argue whether they're public
or not--that those should not necessarily be separately
compensable events.
Mr. Boucher. All right. Thank you very much.
Mr. Chairman, I ask unanimous consent for an additional
minute.
Mr. Smith. Without objection, the gentleman is recognized
for an additional minute.
Mr. Boucher. And Ms. Peters, I have two other questions. I
am going to ask these in a block and you can answer in a block,
if you would like. I would hope you would separately address
each.
You also suggested in your section 104 report that in order
to make the purchase of legal music on the web more attractive
to the consumer, that the right of the consumer to back up the
music that he has lawfully acquired be recognized as a fair
use. I would be very interested in acknowledging that in
whatever statute we report from this Committee. Do you continue
to make that recommendation to us, also?
Ms. Peters. When you have, yes, legally purchased material,
we basically said that everybody was, in fact, doing it and we
might as well acknowledge it.
Mr. Boucher. Okay, thank you. I forgot to ask this other
question at the same time. I have always thought that we should
equate webcasting with the rights and privileges that inure
within the record store, within the physical record store, with
respect to the ability to sample for 20 seconds or 30 seconds
the music before the decision is made to purchase it.
And so you acknowledged also in your 104 report that these
samples, it would be appropriate to equalize treatment with
regard to these, and so I would ask you if you would recommend
to us that we allow the web 20-second or 30-second sample to be
given the same license-free status that presently applies to
the in-store sales.
Ms. Peters. You are talking about section 110(7)?
Mr. Boucher. That's correct.
Ms. Peters. We think that certainly there's a reasonable
argument that using a snippet for the purpose of selling music,
so that people can listen, do I want to buy it or not, is
something that we could support. But the question is, how much
is the snippet, and there have been talk of 30 seconds and 60
seconds. I am of he view that 60 seconds may be too long.
Mr. Boucher. Sixty seconds may be too long?
Ms. Peters. Right.
Mr. Boucher. Well, thank you. Those were very helpful
answers, and again, thank you for the good job you have done
with this.
Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Boucher.
The gentleman from Utah, Mr. Cannon, is recognized for his
questions.
Mr. Cannon. Thank you, Mr. Chairman.
It's always a pleasure to have you with us, Ms. Peters. To
follow up on Mr. Keller's comment, in a world where we have
twins or triplets or quadruplets or however many people out
there speaking this special language, you've always been very
clear with the Committee and very helpful to me.
Following up also on one of the things that Mr. Keller was
saying, I take it from where you are headed that you believe
that these--that your proposal is going to help legal royalty
paying online kinds of services compete against piracy. Is that
the case, and if so, how will that work?
Ms. Peters. I was essentially saying that if, in fact, it
is easy to get a license and license all of the things that you
need to do, then, in fact, I thought that that would encourage
legitimate music services, and the more music services that we
have providing product and competing with each other, that is a
good thing.
I do think that many people in the United States would
prefer to help songwriters and would buy the legitimate version
if, in fact, it was a viable option to the free.
Mr. Cannon. Because of the efficiencies your system would
have, it would--the system would be cheaper and therefore you
could compete at a lower price, I take it, with free.
Ms. Peters. And the people who had these services were able
to acquire the entire music repertoire, not just parts of it.
Mr. Cannon. So is the point of your legislation to combine
the system so that the mechanical side of the equation
functions like the PROs?
Ms. Peters. Yes.
Mr. Cannon. Thank you. One reason we have decided to review
the issue of music licensing is because today, customers are
not able to access all of the new products they want to buy in
the marketplace. So it is my understanding that DVD audio disks
and other new formats cannot break into the marketplace to meet
consumer demand. Under your proposal, would these types of
formats automatically be able to be licensed and available to
consumers?
Ms. Peters. If you're talking about DVD audio, it may have
an audio-visual component that I haven't addressed.
Mr. Cannon. So----
Ms. Peters. So I only addressed the music part, so it may
not.
Mr. Cannon. So where do we go? I mean, obviously, the world
doesn't make the nice distinctions we have historically drawn
here. How do we get to the next phase?
Ms. Peters. In our proposal, we actually looked at what the
problems seemed to be, which was the right to get the music. If
it's a broader problem and it's true some of the parties have
identified broader problems--lyrics, video, synchronization
rights--then it's appropriate for the Committee to look at
those things and determine what the scope of any activity,
remedial activity it wants to make should be made.
Mr. Cannon. Thank you again for your very clear thoughts
and I yield back, Mr. Chairman.
Mr. Smith. Thank you, Mr. Cannon.
The gentleman from Florida, Mr. Wexler, is recognized for
his questions.
Mr. Wexler. Thank you, Mr. Chairman.
I would first like to just associate myself with the
remarks of Mr. Boucher regarding the thoughtfulness, obviously,
that your plan was prepared.
If I could ask you, just in terms of the theory of where
you think you're headed, in previous hearings, we've heard the
predictions of the variety, and Mr. Keller spoke to them a bit,
about the new type of products that would be offered, the music
videos, the concert footage, the lyrics and so forth. Are you
confident that the proposed changes that you have associated
yourself with, that if we make them, that the licenses to all
of these works will be at least as available as they are today?
Can you assure us that that will be the case?
Ms. Peters. There are no assurances.
Mr. Wexler. In your view?
Ms. Peters. It's my view that they would be, but it's only
my view. I don't have a crystal ball and--I just think that
people don't make money unless they license works. I mean, I
have never heard a copyright owner--well, there's a few recluse
authors, but most of the time, people want their works to be
licensed and they want it licensed about the world so that they
can be paid.
Mr. Wexler. Would you agree that the net result of the
proposed changes are that the works are less available than
they are today, then the changes have not been successful?
Ms. Peters. That would be bad. Yes, I agree. I mean, the
whole goal is more availability, so anything less than more
availability is not a good thing.
Mr. Wexler. I'm done, Mr. Chairman. Thank you very much.
Mr. Smith. Thank you, Mr. Wexler.
Ms. Peters, thank you very much for your testimony. This
has been most helpful and most informative.
If there are no further questions, we stand adjourned.
Thank you.
[Whereupon, at 11:03 a.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard Berman, a Representative in
Congress from the State of California, and Ranking Member, Subcommittee
on Courts, the Internet, and Intellectual Property
----------
Prepared Statement of the Honorable John Conyers, Jr.
As I have stated before, I have serious reservations with proposals
that limit the rights of content creators to negotiate a fair rate for
their creativity.
I understand that there are broad proposals to revamp the music
licensing system. Many of the proposals, however, appear to impact only
the songwriters, the lowest-paid content owners there are. This process
should not be thought of by anyone as an opportunity to extract further
concessions from creators who already are the most heavily-regulated
and restricted in the music industry.
Further, considering that all of the interested parties agree that
the administration of the section 115 mechanical license should be
streamlined, I believe that is where this Subcommittee should direct
its energy. If we do that, we could pass a non-controversial bill very
quickly. If, however, we pursue a broad approach that negatively
impacts some groups in favor of others, it is likely that nothing will
be accomplished except for alienating the actual creators of content.
Finally, we must retain the ability of songwriters to negotiate a
far rate for their musical content. While a rate court would appease
some parties seeking a quick resolution to royalty disputes, private
negotiations would be the most appropriate forum for such
conversations.
----------
Letter from Jonathan Potter, Executive Director, Digital Media
Association to the HonorableLamar Smith, a Representative on Congress
from the State of Texas, and Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property
----------
Letter from Steven M. Marks, Recording Industry Association of America
to the Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Subcommittee on Courts, the Internet, and
Intellectual Property
----------
Response from the National Music Publishers' Association, Inc. In
Response to the Testimony of Marybeth Peters, Register of Copyrights,
Submitted June 28, 2005
National Music Publishers Association (``NMPA'') respectfully
submits its testimony in response to the legislative proposal drafted
by the Copyright Office. We thank the Chairman, Ranking Member, and the
Subcommittee for their attention to matters instrumental to the
livelihood of songwriters and music publishers. We also appreciate the
time and effort invested in drafting the draft legislation; however we
are unable to support this proposal.
First, we believe the Copyright Office proposal is fatally flawed
and would be harmful to songwriters and music publishers. Second, we
believe the unilicense proposal submitted by NMPA, the American Society
of Composers, Authors, and Publishers (``ASCAP''), Broadcast Music,
Inc. (``BMI''), Nashville Songwriters Association International, and
the Songwriters Guild of America is a superior proposal and would
better address the needs of the marketplace while protecting the owners
of copyrights. And third, we strongly believe if Congress chooses to
change the laws regarding music licensing, it should embrace a free
market approach rather than the more intrusive government role proposed
by the Copyright Office
Initially, we believe the Copyright Office proposal would impose
more government control over the music industry and would not result in
a free marketplace system. At the Courts, the Internet, and
Intellectual Property Subcommittee hearing on June 21, 2005, the
Register of Copyrights, stated in her written testimony, ``I believe
that the preferable solution is to phase out the compulsory license to
allow for truly free market negotiations.'' The Copyright Office
proposal would indeed eliminate Section 115 of the Copyright Act;
however, the Copyright Office proposal does not allow for free market
negotiations. Instead, the Copyright Office proposal forces new Music
Rights Organizations (``MROs'') to be subjected to rate courts, unlike
record labels, which have no rate setting mechanism and are allowed to
operate in a free market. A true marketplace system would allow all
parties to negotiate on the same level without any ``backstop.'' By
mandating that Performing Rights Organizations (``PROs'') become MROs
and tasking these new MROs with administering both performance and
mechanical rights, the Copyright Office proposal may subject mechanical
rights to the same rate courts outlined in consent decrees, which
govern some PROs. The Copyright Office proposal does not clearly
address whether the rate courts that currently apply to some performing
rights rate negotiations would apply to mechanical rate negotiations.
More than likely, mechanical rate negotiations would be subjected to
these same rate courts, resulting in more government control over
negotiations rather than less. Merging mechanical and performance
rights into one rate proceeding will reduce the small amount of
bargaining power that the songwriters have. Record companies currently
do not have a rate court imposed on them, so they are free to negotiate
as they please without regulation. This proposal does nothing to level
the playing field.
Additionally, the Copyright Office proposal would put the Harry Fox
Agency (``HFA''), the primary mechanical licensing agency, at a severe
competitive disadvantage since it would take away a substantial section
of its business, administering mechanical royalties in the digital
world, and forcibly give it to PROs by statute. For HFA to compete, it
would have to convince writers and publishers to grant expressly both
mechanical and performance rights to HFA and then build a performance
right infrastructure, which would take a considerable and potentially
prohibitive amount of effort and expense. The most likely result of the
Copyright Office proposal is that HFA will be left with only licensing
mechanical rights in the physical world, threatening its viability all
together.
The Copyright Office proposal would have major financial
repercussions on the industry as well. The PROs would be forced to
build a mechanical rights licensing, collection and distribution
infrastructure, which would involve a large capital cost and additional
operational overhead, thereby reducing royalty payments to writers and
publishers. Likewise, as stated earlier, for HFA to continue to
function, it would have to build a performance rights infrastructure
which would be almost impossible. There are many other complications,
such as splits that can differ between performance and mechanical
royalties. The proposal also devalues mechanical rights by combining
them with performance rights, thereby reducing royalty payments to
writers and publishers.
The Copyright Office proposal would create more confusion than the
current system. It was the Copyright Office's intent to create one (or
three) stop shopping for the digital media companies who sell the
property of songwriters and artists. However, it is entirely
conceivable that several MROs could emerge and complicate things even
more. The publishers, especially large multinational publishers, may
decide it is more economical to create their own MROs and license
directly.
We are also concerned that the Copyright Office proposal does not
address the transition from the current system to this new MRO system.
When asked about the transition at the subcommittee hearing on June 21,
2005, the Register confessed that the Copyright Office proposal does
not provide for such a transition.
Second, we believe our unilicense proposal is a superior solution
to the Copyright Office proposal that would balance the needs of the
marketplace with the interests of copyright owners. The goal sought by
the Copyright Office--to have one place to obtain the performance and
mechanical rights needed for a single price - is achieved in the
unilicense proposal.
The unilicense addresses the areas of most critical need raised by
digital media providers--access. The unilicense would create a Super
Agency. Digital companies would go to the Super Agency and obtain a
blanket license covering both performing and mechanical rights and pay
a percentage of their revenue. The digital companies would then have a
license for all recorded songs, and it would be the responsibility of
the mechanical designated agent and performance designated agents to
administer the royalties and distribute them to the appropriate
writers/publishers.
Finally, we believe any Congressional action regarding music
licensing should move toward a free market.
NMPA supports eliminating Section 115 of the Copyright Act and
truly allowing the marketplace to govern the music industry. We support
eliminating controlled compositions, which is not addressed in the
Copyright Office proposal even though there has been receptivity to
this in some congressional quarters. We support ending 96 years of
compulsory licensing of songwriter effort. We support ending the
government choosing the rates at which songwriters are compensated. We
support keeping the government out of dictating the amounts songwriters
and publishers are paid. If Congress acts, we respectfully request it
act consistently with free market principles.
Again, we appreciate the opportunity to respond to the Copyright
Office draft legislation and testimony. We will continue to meet with
other parties in the industry and are hopeful that the marketplace can
address many of these concerns without government intervention.
----------
Statement of Major Songwriting Organizations, the Songwriters Guild of
America and the Nashville Songwriters Association International in
response to the testimony of the Honorable Marybeth Peters, Register of
Copyrights
----------
Prepared Statement of the Local Radio Internet Coalition in response to
the testimony of the Honorable Marybeth Peters, Register of Copyrights
----------
Statement of the Recording Artists' Coalition in Response to the
testimony of the Honorable Marybeth Peters, Register of Copyrights,
Submitted June 28, 2005
Mr. Chairman, Mr. Berman, and distinguished Members of the
Subcommittee,
Thank you for the opportunity to present our views to the
Subcommittee on the proposed 21st Century Music Licensing Reform Act,
and the Statement of Marybeth Peters, Register of Copyrights, before
this Subcommittee on June 21, 2005.
The Recording Artist Coalition is a non-profit recording artist
advocacy group comprised of numerous well-known featured recording
artists, including Don Henley, Sheryl Crow, Jimmy Buffet, Natalie
Maines, Billy Joel, Stevie Nicks, Bonnie Raitt and Bruce Springsteen.
In her testimony, Register Peters identified numerous problems
relating to music licensing on the Internet. A number of her
suggestions have merit and should be considered. However, her proposal
to abolish the Section 115 compulsory license for all ``physical''
delivery of mechanical reproductions of sound recordings
(``phonorecords'') is not desirable. RAC favors some reform of the
licensing system for ``digital'' delivery of phonorecords, but strongly
urges caution when applying this solution to ``physical'' phonorecords.
Contrary to the assertions made by the Register, the Section 115
compulsory license for ``physical'' product remains vital to the
business model used by the vast majority of the recording industry.
Repeal of the compulsory license will most assuredly bring greater
uncertainty, unintended consequences, increased transactional costs
and, most likely, a decrease in royalties for most songwriters.
The Register states in her testimony that ``. . .the use of the
Section 115 compulsory license has steadily declined to an almost non-
existent level. It primarily serves today as merely a ceiling for the
royalty rate in privately negotiated licenses.''
In our estimation, when applied to the sale of physical
phonorecords, the compulsory license does much more than that.
Recording artists, record labels, songwriters, and publishers have
embraced the compulsory license system as a ``backdrop.'' For example,
while it is true few record labels or recording artists seek a
Copyright Office compulsory license, the copyright owners and
prospective licensees understand that, if direct negotiations fail, a
license may be secured from the Copyright Office. This is why the rate
offered by the Harry Fox Agency is almost invariably set at ``a full
statutory rate,'' and controlled composition clauses of the vast
majority of recording artist/songwriter contracts provide for a ``full
statutory rate,'' ``seventy-five percent statutory rate,'' or something
in between. The industry has accepted the compulsory license rate,
which increases every few years, and other terms of the compulsory
license as a benchmark.
The compulsory license was originally intended to prevent or stifle
monopolistic practices. Abolishing the compulsory license for physical
phonorecords, however, will adversely affect many parties and will
create the exact monopolistic, anti-competitive tendencies in the music
industry the compulsory license was created to prevent.
In a totally unregulated free market, the major labels could pay
highly coveted songwriters advances and/or a rate well above the
present statutory rate. Mid-level or new songwriters (the vast majority
of the songwriter community) will most likely have to settle for a
fraction of the compulsory rate. They will be unable to compete with
established songwriters. Those surviving will earn less, and those
unable to survive may stop writing. Major labels may even seek
exclusive licenses over highly coveted songs, thus preventing their
competition from recording a ``cover version'' of the same song - a
practice impossible to impose under the present system.
Major record labels will also have a distinct advantage over
independent and start-up record labels. They will be able to exert
unprecedented control over the top songwriters and songs. They could
offer songwriters advances and other benefits on particular songs - a
practice which independent and start-up labels could not afford.
Independents and start-ups would be cut off from the best songwriters
and songs.
Repeal of the compulsory license would also adversely affect the
recording process. Without the certainty of the compulsory license,
recording artists would opt for recording more of their own songs
because they would not know how the inclusion of a third party ``cover
song'' would affect their controlled composition rate. This would
certainly result in fewer recordings of ``cover songs.'' For recording
artists dependent on third party songs, the situation will be even more
dire. The cost associated with ``cover songs'' will most likely
skyrocket.
Furthermore, since almost every recording contract references the
compulsory license to the controlled composition clause, the repeal of
the compulsory license will result in contractual chaos, even if the
repeal was prospective only. Most recording artists enter into long
term recording agreements.
Repeal of the compulsory license will also increase transactional
costs. Record labels, recording artists, managers, publishers, and
songwriters will all have to devote more time and incur greater cost to
clear the songs for release. Music licensing reform was not supposed to
result in increased transactional costs.
Register Peters suggests that collective licensing, perhaps based
on a European model, would work better. We believe there is merit in
considering a system keying the rate to a percentage of the wholesale
or retail price of the product. However, beyond that change, there is
little the European system offers. RAC is not opposed to consideration
of a collective licensing system so long as the rate is uniform, it
applies to all equally, and there is no opportunity to reject the
request for a license. Only under these conditions will the process
benefit all.
The European licensing system, however, does have one provision
that should be adopted immediately. In Europe, and most of the world,
performers receive a royalty for analog-based, public performances
(i.e., radio). Performing artists enjoy such a right for digital
transmissions in the United States, but not for analog use. Equity and
comity demand an extension of that right in the United States to cover
analog performances.
Regarding the proposed changes to the digital delivery of music,
RAC is in favor of the principle of streamlining the licensing
procedure and much of what Register Peters suggests is worthy of
consideration and debate. However, the proposal to create multiple,
unlimited music rights organizations (MRO) should be reconsidered.
Creation of a new collection agency receiving notices and paying
songwriters directly would be preferable.
As previously mentioned by Register Peters, the compulsory license
system is rarely used in its present form. We believe that is because
the accounting and payment system is monthly instead of quarterly, and
mechanicals must be paid on all phonorecords manufactured and
distributed, not merely sold. These are two of the most important
differences between the Harry Fox Agency licensing system and the
compulsory license system offered by the Copyright Office. If the
compulsory license provision were amended to include quarterly payments
and an allowance for ``free goods,'' most likely the Copyright Office
system would become very appealing.
We thank you again for this opportunity to provide the Subcommittee
with our comments.
----------
Statement of the Television Music License Committee and the Radio Music
License Committee in response to the testimony of the Honorable
Marybeth Peters, Register of Copyrights
----------
Letter to the Honorable Lamar Smith, a Representative in Congress from
the State of Texas, and Chairman, Subcommittee on Courts, the Internet,
and Intellectual Property and to the Honorable Howard Berman, a
Representative in Congress from the State of California, and Ranking
Member, Subcommittee on Courts, the Internet, and Intellectual Property
from Del R. Bryant, Broadcast Music Inc.
----------
Prepared Statement of SESAC, INC.
SESAC appreciates the opportunity to present this statement in
light of the written and oral testimony presented by MaryBeth Peters,
the Register of Copyrights, at the June 21, 2005 hearing in connection
with the proposed revision of Section 115 of the Copyright Act and the
draft of her proposed ``21st Century Music Licensing Reform Act'' and
related comments. SESAC also appreciates the efforts of the Register of
Copyrights to update the statutory framework for the licensing of
nondramatic musical works.
The Register's proposal would transform the performing rights
organizations (``PROs'') into, and perhaps have other entities become,
Musical Rights Organizations (``MROs''). Of the four entities that
presently license musical rights on a collective basis - SESAC, ASCAP,
BMI, and the Harry Fox Agency (``HFA''), only SESAC has any experience
in licensing both performance and mechanical rights, as the proposed
MROs would be authorized to do. Although SESAC historically has engaged
in a limited amount of mechanical licensing as an accommodation to some
of its affiliates, SESAC has not decided at this time whether it wants
to engage more extensively in that marketplace. Given its on-going
struggle to compete effectively in the highly competitive performing
rights marketplace against two dominant competitors (one of which,
ASCAP, contrary to its recent testimony, has raised ever greater
hurdles for songwriters wishing to leave and, in any event, requires
their compositions to stay in the ASCAP repertory), SESAC is opposed to
being required by legislation to undertake a substantial new business
function that it might choose to forgo.
Unlike ASCAP and BMI, SESAC is not subject to Department of Justice
Consent Decrees or their specific remedial restrictions, such as rate
court proceedings. Those provisions are not free marketplace mechanisms
but, rather, are punitive and remedial requirements placed upon ASCAP
and BMI. In any proposed legislative reworking of the musical rights
licensing marketplace, including the Register's proposal concerning
MROs, SESAC strongly believes that the corrective measures imposed upon
ASCAP and BMI by the Department of Justice should not be foisted by
legislative fiat upon other MROs whose marketplace behavior does not
otherwise require Department of Justice sanctions.
Although SESAC generally finds the Register's proposal concerning
the creation of MROs interesting and worthy of further discussion,
SESAC has the following comments and concerns regarding the Register's
testimony and the specific provisions of her draft legislation and
accompanying commentary:
A. The Testimony
1. SESAC agrees with the Register's position (a) that
the free marketplace and private negotiations should be
permitted to dictate the economics of music licensing
(at least for those entities who do not exercise undue
market power in an anticompetitive way), (b) that ever
more efficiency and effectiveness should be brought to
the process of music licensing (but not as an excuse
for de facto devaluation of copyright owners' property
rights), and (c) that the present collective licensing
system utilized by the PROs is working (subject to
continued Department of Justice antitrust oversight of
ASCAP and BMI).
2. The Register, however, appears to further indicate
that, if Section 115 were expanded to encompass a
blanket license, she ``would not be disappointed to
see'' rates for such a license ``established by a
mechanism similar to that which is employed with the
other statutory licenses.'' To the extent that the
Register appears to be endorsing Copyright Office
arbitration proceedings for fee disputes between music
users and MROs concerning Section 115 blanket licenses,
such statutorily imposed third party arbitration would
be contrary to, and effectively would trump, free
market negotiations. SESAC is opposed to being
subjected to such a punitive mechanism for its
performance and mechanical licensing as an MRO.
Although such statutory Copyright Office arbitration
proceedings are mandated for fee-setting under certain
compulsory statutory licenses (as for cable and
satellite retransmissions under Sections 111 and 119,
respectively), statutorily mandated arbitration has
never been the rule in musical performing rights
licensing; it would be an expansion, not a reduction,
of regulatory oversight in place of a free market
negotiations, (particularly as to SESAC, which
represents only approximately five percent of the
performance rights marketplace).
By the same token, to the extent that any other form of
``rate court'' or other third-party fee-setting
oversight is contemplated, SESAC is strongly opposed.
Rate court proceedings are a Consent Decree remedy
imposed by the Department of Justice upon ASCAP and
BMI, and SESAC or any other potential MRO should not be
statutorily and automatically hobbled with such
mechanisms. Any rate court, arbitration, or other
third-party oversight of fee-setting imposed upon
SESAC, or upon any other MRO representing a small
proportion of copyrights, would be ``free market'' in
name only; in fact, it would be the antithesis of a
free marketplace and a ``fix'' for a ``problem'' that
has not been found to exist.
3. SESAC does not accept the proposition that there is
any ``double-dipping'' in the licensing of musical
rights for digital transmissions. SESAC takes the
position that all such transmissions implicate the
public performance right, regardless of what other
rights might be implicated. See U.S.C. Sec. 101.(``To
perform . . . a work `publicly' means . . . to transmit
or otherwise communicate a performance . . . of a work
. . . to the public, by means of any device or process,
whether the members of the public capable of receiving
the performance . . . receive it in the same place or
in separate places and at the same time or at different
times.'').
Moreover, although SESAC is generally in favor of
legislative efforts to seek greater efficiencies in the
present system of music licensing, it does not agree
that the existence of PROs to license public
performance rights, on the one hand, and the licensing
by others of the mechanical rights, on the other hand,
necessarily constitutes ``an impediment that should be
removed because it does not serve the interests'' of
music owners and users. SESAC does not believe that the
performing rights side of music licensing, as opposed
to mechanical licensing, as it presently functions
needs to be legislatively ``fixed'' in any way. The
mechanism to encourage a mechanical rights organization
(be it the HFA or some other entity) to embrace more
efficient licensing practices can be achieved by
eliminating the compulsory license and statutory rate
under the present Section 115 and permitting that
entity to operate freely in the marketplace, perhaps by
issuing blanket licenses.
4. SESAC is particularly troubled by the Register's
suggestion that ``there is no reason why an MRO could
not issue a license subject to subsequent agreement on
what the rate would be, perhaps with some dispute
resolution provision.'' Beyond SESAC's concerns about
having ``dispute resolution'' mechanisms imposed upon
itself or any other entity representing a small
proportion of copyrights, this suggestion of
``automatic'' licensing subject to later fee-setting
again is based upon provisions of the ASCAP and BMI
Consent Decrees, to which SESAC has never been subject
because its business practices would not warrant such a
requirement. The imposition of this provision upon
SESAC or any other small MRO would be ``free market''
in name only. By the same token, SESAC would not expect
any record company or digital music provider, not
otherwise subject to Department of Justice Consent
Decrees, to accept the ``automatic'' sale of CDs or
instant provision of on-line music services upon
consumer request, with the prices of such transactions
to be set sometime in the future.
As SESAC has stated in previous testimony before this Subcommittee,
such a provision would be injurious to SESAC's business. Taken to its
logical extreme, a music user could obtain an ``automatic'' license and
dispute even the most reasonable fee, thus avoiding payment
indefinitely while ``negotiating,'' while already having obtained the
benefit of the bargain. In that event, SESAC's only practical recourse
would appear to be (a) avoiding the expense of further negotiation or
litigation by essentially permitting a ``free'' license, or (b)
submitting to a fee dictated by some third party after having already
been compelled to permit the use of its affiliates' intellectual
property. Such ``automatic'' licensing might be an effective tool under
the ASCAP and BMI Consent Decrees, but it should not be imposed across-
the-board upon SESAC or any other MROs under the banner of efficiency.
B. Draft Legislation and Comments
1. In the Register's comments to her draft legislation
(the ``Bill'') concerning the proposed revision of
Section 101 discussing the definition of an MRO, she
indicates that SESAC, ASCAP and BMI, and perhaps the
HFA, would transform into MROs. Although the Register
indicates that other entities might also become MROs
(or, presumably, simply opt out and conduct their own
music licensing), in her oral testimony she has further
indicated that she does not find a proliferation of
MROs likely under her proposal. To the extent, however,
that the perceived impediment of prohibitory start up
costs is less substantial than suggested, the Bill
certainly provides for the possibility of a large
number of MROs each representing a relatively small
proportion of copyrights, an outcome that might be
viewed as no more efficient - and perhaps less
efficient - than the present system, at least from the
perspective of music users.
2. Proposed Section 115(a)(2) would require that a
license from an MRO to publicly perform a musical work
by means of a digital audio transmission also include a
non-exclusive mechanical license in the work, ``to the
extent that the exercise of such rights facilitates the
public performance of the musical work.'' SESAC would
propose that, in order to narrow the ambit of this
provision to its purported purpose, the language be
changed to read ``to the extent that the exercise of
such rights is necessary to facilitate the public
performance of the musical work.'' (Emphasis added.)
3. Proposed Section 115(a)(4) would provide that, in
order for an MRO to recover statutory damages for
copyright infringement of a musical work, that work
must have been included on a publicly available list
``at the time the infringement commenced.'' Because,
under the current Copyright Act, an infringer of a
single work can only be liable for a single award of
statutory damages no matter how many separate acts of
infringement, over a period of time, are involved in
the action, see U.S.C. Sec. 504(c)(1), this proposed
language could permit a scenario under which the work
is included on the list at some point after the
infringement ``commenced'' but long before it
concluded, in which event the later unauthorized uses
might nevertheless be immune from liability because the
infringement began before the listing. (For example, a
radio station's repeated unauthorized performance of a
given popular song could be legally considered only one
infringement for purposes of statutory damages.)
SESAC would propose that the language be changed to
clearly indicate that, once the work is listed, any
later acts of unauthorized use would be subject to
infringement liability, regardless of whether the
infringement of that work legally ``commenced'' before
the listing. Again, the Register's ``safe harbor''
proposal is rooted in the provisions of the ASCAP and
BMI Consent Decrees imposed by the Department of
Justice, and is a provision that has never been
judicially or statutorily imposed upon SESAC, nor would
SESAC's market power or behavior warrant such a
sanction. SESAC's proposed change to the language more
closely comports with the general principle of
copyright law that it behooves the copyright user to
obtain authorization before exploiting the owner's
intellectual property, and that it is not the copyright
owner's duty, in the first instance, to seek out
potential users to notify them of copyright
requirements. In this regard, SESAC believes that the
citation to Section 412, concerning the requirement of
copyright registration as a prerequisite to statutory
damages, is inapposite.
4. The comments to proposed Section 115(a)(5)
recognize that ASCAP and BMI are presently subject to
Department of Justice Consent Decrees, which may
prohibit their licensing of both performance and
mechanical rights, and state that the proposed
statutory language would abrogate those restrictions
without abrogating the other provisions of the ASCAP
and BMI Consent Decrees, such as the rate court
provisions. SESAC is concerned, however, that the
language of proposed Section 115(a)(5) is ambiguous and
could easily be read to suggest that, once ASCAP and
BMI become MROs, they are no longer subject to ``the
antitrust laws or any judicial order'' presently
restricting their activities in public performance
licensing. SESAC proposes that this language be changed
to simply and clearly state that ASCAP and BMI would no
longer be prohibited from mechanical licensing by
virtue of the antitrust laws or any judicial order then
in effect. The language of the comment itself could be
the source of revised statutory language. Additionally,
as the Register of Copyrights anticipates in her
comments to this proposed subsection, SESAC believes
that, if the provision in the ASCAP Consent Decree
which prohibits it from mechanical licensing were
abrogated, all of the other provisions of that Consent
Decree (and of the BMI Consent Decree) should remain in
place. On the issue of whether the Consent Decrees
should be modified to cover ASCAP's and BMI's new
mechanical licensing activities as MROs, SESAC presumes
that a careful review by the Department of Justice
would be in order.
As a general matter, the creation of MROs presents substantial
logistical issues that would have to be addressed. For example, any MRO
other than a music publisher would be required to negotiate and execute
a massive number of new agreements with their affiliated copyright
owners (hundreds of thousands, in the case of ASCAP, BMI, and HFA),
which could result in a total realignment of the music licensing system
which, at least from the perspective of performing rights, does not
appear to be malfunctioning. In reality, ASCAP, BMI, and the HFA are
not knowledgeable or experienced in licensing rights that they
currently do not represent. The concern is that, by entrusting such
valuable rights to unproven, inexperienced, and ill-prepared
organizations could create a less efficient marketplace that would
lower the value of music licensing fees.
Additionally, each of the present PROs has reciprocal agreements
with numerous foreign performing rights organizations under which the
foreign entities monitor and collect and remit payment for foreign
performances of U.S. works, while the U.S. entities likewise monitor
and collect and remit payment for domestic performances of foreign
works. The creation of MROs that also license mechanical rights would
necessarily require significant contract revision among the many
parties to address whether , and how, those mechanical rights would be
administered reciprocally for both U.S. and non-U.S. works. Moreover,
as acknowledged in the commentary to the Bill, in the case of a so-
called ``split copyrights'' co-written by songwriters who are not
affiliated with the same MRO, true ``one stop'' licensing for that
musical work simply would not be possible because more than one MRO
would be licensing the right to use that work.
SESAC would note that it has presented an alternative proposal to
amend Section 115 - to the extent any amendment is necessary - that
also would eliminate the compulsory license in favor of a so-called
``unilicense'' under an enhanced collective licensing system, as
suggested by the Register. Although SESAC's proposal is in line with a
similar unilicense proposal submitted jointly by ASCAP, BMI, and the
HFA, SESAC cannot agree to their further proposal that such a
unilicense be administered by a SoundExchange-like ``superagency'' in
which SESAC would be inexplicably excluded from having an equal voice
in its administration. If, as suggested by those entities, such a
superagency would be merely a ``lockbox'' mechanism for collecting and
disbursing licensing fees, then they should have no objection to
SESAC's equal participation. If, on the other hand, such a superagency
would, in the guise of merely clerical decisions, be making substantive
determinations concerning the rights involved, (such as determining
what constitutes a ``pure'' download or stream, setting or adjusting
the price and terms of licenses, setting the reporting requirements of
licensees, determining what proportion of a unilicense fee is
attributable to performance rights, determining what proportion of
performance fees are attributable to SESAC, the terms and conditions of
licenses, and the amount of overhead charges and administrative fees),
then SESAC should have, and in fact deserves, equal participation in
the administration for at least two reasons.
First, it is a simply illogical and unfair that, of the four
principal entities that collectively license rights in musical works,
only one of them - SESAC - would be excluded. Second, SESAC's presence,
more than that of any of the other entities - would provide the
expertise and efficiency to see that such a superagency run efficiently
and effectively. In this regard, SESAC alone has experience in the
licensing of both performance and mechanical rights. Moreover, unlike
the other three, SESAC, as a for-profit entity is required to
constantly create and employ marketplace efficiencies to operate
successfully. For example, as the only for-profit entity among the
four, SESAC assuredly has a keener regard for minimizing overhead in
the operation of such a superagency. In this light, SESAC has at least
an equally valid claim to full and equal participation in such a
superagency.
In particular, the arrogance of ASCAP and BMI in proposing that
SESAC be ``specifically excluded'' from administration of such a
superagency, and their proposal that they alone control the purse
strings for license fees attributable to (their smaller competitor)
SESAC, are striking but not unexpected. Just as ASCAP and BMI dominate
the performing rights industry, they now propose without hesitation
that they alone control the functioning of this superagency's musical
rights licensing - a dominance that they would exercise throughout the
entire musical rights licensing industry. Clearly, although these
entities' anticompetitive tendencies have been circumscribed, they have
not been fully cured by the intervention of the Department of Justice.
Expanding the field to include mechanical licensing would not be in the
best interests of competition or of the economic development of a free
marketplace for musical rights in new and developing media.
In the end, it is no more fair or logical to prohibit SESAC's equal
participation in a superagency than to propose, for example, that ASCAP
be excluded, given its anticompetitive nature and lack of experience in
mechanical licensing. It is no more fair or logical to propose,
alternatively, that ASCAP and BMI share or alternate one ``seat at the
table'' designated to represent the dominant not-for-profit PROs, given
the fact that they both lack mechanical licensing experience and both
are in agreement concerning the superagency's functioning, as evidenced
by their joint proposal. In fact, it would be no less fair or logical
to propose that SESAC - the only PRO that is not under Department of
Justice oversight and the only PRO with mechanical licensing experience
- be the entity designated to represent all PROs in this superagency.
Despite all of these possible scenarios which would be at least as
fair and logical as the ASCAP/BMI/HFA proposed domination of a
superagency, SESAC has merely proposed that either the Copyright Office
administer such a unilicense for digital audio transmissions, along the
lines of its administration of cable, satellite and DART compulsory
licenses or, alternatively, that SESAC - for reasons of fairness and
expertise - have at least an equal voice in the administration of any
proposed superagency to administer such a unilicense
In conclusion, any legislative reworking of the music licensing
system, through the creation of MROs, a unilicense, a superagency, or
some other means, should recognize SESAC's unique and beneficial role
in this marketplace; it cannot support any proposal that it determines
would lead (in the course of correcting problems created by others) to
the imposition of punitive, remedial, or exclusionary constraints upon
it. SESAC stands ready to work with all interested parties in exploring
any legislative initiative to improve the efficiency and effectiveness
of music licensing, so long as the interests of fairness to all parties
are preserved.
----------
COMMENTS OF THE AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS
SUMMARY
ASCAP submits these comments in response to the testimony of the
Register of Copyrights and accompanying draft legislation submitted to
the Subcommittee on June 21, 2005. ASCAP applauds the efforts of the
Subcommittee, the Chairman and Ranking Member, in addressing issues
vital to the well-being of songwriters and music publishers. ASCAP also
applauds the goals of the Copyright Office's effort, as stated by the
Register in her testimony. Unfortunately, the legislative proposal
offered by the Copyright Office with the best of intentions does not
further these laudable goals. The Copyright Office proposal, well-
intentioned though it is, is fatally flawed throughout and will likely
harm, rather than help, songwriters and music publishers. Our
unilicense proposal, however, achieves the same goals as the Copyright
Office proposal, without any of the attendant dislocations and
concerns.
COMMENTS
The American Society of Composers, Authors and Publishers (ASCAP)
submits these comments in response to the testimony of the Register of
Copyrights and accompanying draft legislation submitted to the
Subcommittee on June 21, 2005. As the Subcommittee is familiar with
ASCAP, we simply attach a brief description of the Society and its
operations for the record.
ASCAP applauds the efforts of the Subcommittee, the Chairman and
Ranking Member, in addressing issues vital to the well-being of
songwriters and music publishers.
ASCAP applauds the goals of the Copyright Office's effort, as
stated by the Register in her testimony. The Register made several
points in her testimony that bear repeating, and which we fully
endorse:
1) The Register advocated a solution to the pending issues
``that comports with the Copyright Office's longstanding policy
preference against statutory licensing for copyrighted works
and our preference that licensing be determined in the
marketplace where copyright owners exercise their exclusive
rights.'' (Written test., 6.) We agree.
2) The Register said that the time had come to phase out the
mechanical compulsory license and allow for truly free market
negotiations. We agree.
3) The Register said that Section 115 should be modernized to
deal with licensing of copyrighted works in the digital age. We
agree.
4) The Register advocated collective administration as a
means of achieving that end. We agree.
5) The Register recognized that separate rights in
copyrighted musical compositions - the mechanical right and the
performing right - were involved in digital uses, and that
payment to creators and copyright owners for both rights was
proper and was not ``double dipping.'' We agree.
6) The Register advocated enabling a single licensing regime
which would encompass both rights, and thus benefit users
administratively. We agree.
7) The Register noted that facilitating legal uses, for which
creators and copyright owners were paid, was necessary to
combat piracy. We agree.
8) The Register noted that our model of licensing the
performing right ``works very well.'' (Written test., 14.) We,
of course, agree.
9) Most importantly, the Register said that, ``As always, my
focus is primarily on the author. The author should be fairly
compensated for all non-privileged uses of his work.
Intermediaries who assist the author in licensing the use of
the work serve a useful function. But in determining public
policy and legislative change, it is the author - and not the
middlemen - whose interests should be protected.'' (Written
test., 15.) As a membership association owned and run by and
for composers, authors and music publishers - in which the
interests of songwriters and music publishers coincide fully -
we agree.
Unfortunately, the legislative proposal offered by the Copyright
Office with the best of intentions does not further these laudable
goals. Here are some reasons why:
The Copyright Office's proposal to unify mechanical and performing
rights licensing in Music Licensing Organizations (MROs) would defeat
the very purpose it ostensibly seeks to achieve.
First, instead of the ``one-stop shop'' advocated by the Register,
the proposal would result in a proliferation of MROs. Instead of
dealing with one, or even three, licensing organizations, digital users
would have to deal with far more than they now do.
Second, the proposal would severely harm, rather than help,
authors. The efficiency of collective licensing through the existing
performing rights organizations (ASCAP, BMI and SESAC), which was so
lauded by the Register, would be destroyed, as members or affiliates of
the organizations could well withdraw (by resignation) from the
organizations and put their rights into smaller MROs, fragmenting the
market and exacerbating the unequal bargaining power the PROs now face
in dealing with huge user entities. The result could be the destruction
of the PROs' efficiency. And those fragmented MROs might not be run by
and for songwriters in partnership with their music publishers, as
ASCAP is.
Third, ASCAP and BMI, transformed into MROs, would still be subject
to the strictures of the consent decrees which, for example, make their
rates subject to court determination. While we have lived comfortably
under the consent decree in the licensing of performing rights for over
fifty years, the Copyright Office proposal is unfair for several
reasons: It would impose court rate determination on mechanical rights,
where it has never been before. It flies in the face of the stated goal
of freeing mechanical rights from compulsory licensing and allowing the
free marketplace to work, and would reduce the bargaining power that
songwriters and their publishers have. And, if MROs other than ASCAP
and BMI arise (which we believe is a virtual certainty), there would be
an unequal playing field - they would not be subject to any rate
determination mechanism, while our writer and publisher members and
BMI's affiliates would be for both performing and mechanical rights.
That is patently unfair.
Fourth, ASCAP and BMI do not have any administrative structure in
place to deal with mechanical rights. The proposal thus would penalize
songwriters and publishers, who would have to pay the costs of creating
and administering such a structure.
Fifth, our experience has shown that when the rights of
reproduction, distribution and performance are combined on a compulsory
basis - which would be the case with the Copyright Office's proposal -
the license fees received by songwriters, composers and their
publishers go down, and not just because administrative cost savings
(if any) are passed along to users. Such was the result when, fifty
years ago, the synchronization and performing rights were compulsorily
``merged'' for theatrical exhibitions of motion pictures in the United
States - our writers and publishers receive far less than do their
colleagues in other countries where those rights are not compulsorily
merged.
Sixth, there are many concerns regarding both digital and physical
goods mechanical licensing. ASCAP does not license and has never
licensed these rights - indeed, our consent decree forbids us from
doing so - and hence defers to the expertise of the National Music
Publishers Association and the Harry Fox Agency on these matters.
In sum, the Copyright Office proposal, well-intentioned though it
is, is fatally flawed throughout.
Our unilicense proposal, however, achieves the same goals as the
Copyright Office proposal, without any of the attendant dislocations
and concerns.
Our unilicense proposal works because: 1) it provides digital users
with a true ``one-stop shop'' where they can get all the rights in
musical compositions that they need; 2) it keeps existing licensing
structures, thus eliminating any additional administrative expenses of
any significance, while reaping the benefits of many decades of
licensing experience and expertise; 3) it prevents the utter chaos in
the music industry that would result from the Copyright Office
proposal; and 4) it does not impose any compulsory licensing regime,
and allows the marketplace to function without governmental
interference.
We greatly appreciate the leadership shown by the Chairman and
Ranking Member in dealing with this issue, and also commend the
Register for the laudable goals she set forth in her testimony. We
pledge our full efforts to achieve a workable solution which is
beneficial for songwriters, for the music publishers who invest in and
facilitate their creativity for the benefit of the public, and for the
users of music as well.
ABOUT ASCAP
The American Society of Composers, Authors and Publishers is the
United States' oldest and largest performing rights licensing
organization. ASCAP was founded in 1914 by songwriters including Victor
Herbert and John Phillip Sousa, for the purpose of licensing the right
of nondramatic public performance in the copyrighted musical works they
created.
ASCAP is the only true American performing rights society - it is
an unincorporated membership association, whose members (now numbering
over 210,000 active writers and publishers) are exclusively composers,
lyricists and music publishers. ASCAP is run by a 24-person Board of
Directors consisting of 12 writers and 12 publishers; the writer
Directors are elected by the writer members of ASCAP and the publisher
Directors by the publisher members. The current Chairman of the Board
is the noted, multiple award-winning lyricist Marilyn Bergman.
The ASCAP repertory consists of millions upon millions of musical
works in all genres and types - pop, rock, alternative, country, R&B,
rap, hip-hop, Latin, film and television music, folk, roots, blues,
jazz, reggae, gospel, contemporary Christian, new age, theater,
cabaret, dance, electronic, symphonic, chamber, choral, band, concert,
educational and children's music - the entire musical spectrum.
ASCAP is home to the greatest names in American music, past and
present, as well as thousands of writers in the early stages of their
careers. ASCAP members include Cole Porter, Aaron Copland, Stevie
Wonder, Bruce Springsteen, Leonard Bernstein, Madonna, Wynton Marsalis,
Stephen Sondheim, Dr. Dre, Mary J. Blige, Duke Ellington, Rogers and
Hammerstein, Garth Brooks, Tito Puente, Dave Matthews, Destiny's Child,
and Henry Mancini, just to name a few. In addition, through affiliation
agreements with foreign performing rights societies, ASCAP licenses the
music of hundreds of thousands of their members in the USA.
ASCAP's licenses allow music users to perform any and every work in
the ASCAP repertory, upon payment of one license fee. ASCAP's hundreds
of thousands of licensees include Internet sites and wireless services,
restaurants, nightclubs, hotels and motels, cable and television
networks, radio and television stations, conventions and expositions,
background/foreground music services, shopping malls, dance schools,
concert promoters, and retail businesses. Those who perform music find
ASCAP's licensing model highly efficient, for, with one transaction,
they are able to perform whatever they want in the enormous ASCAP
repertory.
ASCAP deducts only its operating expenses from the licensing fees
it receives (in 2004, operating expenses were 13.5% - lower than any
other American performing rights organization, and among the lowest in
the world). The remainder is split 50-50 between writers and
publishers. Each member's royalty distribution is based on a survey of
what is actually performed in the various licensed media. ASCAP royalty
distributions make up the largest single source of income for
songwriters, enabling them to make a living, pay their rent and feed
their families. ASCAP thus fulfills the Constitutional purpose of
copyright, allowing songwriters - who are the smallest of small
businessmen and women - to earn a fair return on the use of their
property and so use their creativity to enrich America's culture.
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Letter from the Honorable Marybeth Peters, Register of Copyrights to
the Honorable Lamar Smith, Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property, submitted July 19, 2005