Third, as noted earlier, interactive music services obtain licenses that cover both the reproduction and the performance rights in musical recordings and works. The sound recording licenses are obtained directly from the appropriate copyright owners. The musical work licenses often engage a combination of both collective and direct (or voluntary) licensing, involving discussions with not only performance rights organizations, but also the copyright owners themselves (or their appointed publisher/representative).
The point is that consent decrees obviously and significantly hasten the amount of time it takes for a new service to be licensed by the core performance rights organizations in the US. When rates cannot be eventually agreed upon, however, the resulting rate-setting proceedings can and have extended for years. Simply stated, due to the terms found in government-established agreements that cover the licensing activities of ASCAP and BMI, a service can operate as licensed (for public performance rights) by simply requesting a price for a license with characteristics not covered by the standard license terms published by these collective rights organizations. The result is a situation wherein a service can operate as licensed, yet the rate for that license has yet to be agreed upon.
Fourth, the amount of time it has taken to obtain a sufficient collection of licenses covering what are called the mechanical (or reproduction) rights in the interactive use of musical works has decreased over the last decade — from what once was years to less than 90 days in some cases.
This new found expediency can be had only as long as the service’s features fit within the categories outlined by a 2008 agreement covering interactive services, and the service chooses to license via what is known as the ‘notice of intent’ process. Essentially, this agreement requires that a service give written notice to the appropriate copyright holder, or their representative, of the intent to operate under established terms before the right to operate under those license terms can be enjoyed. If the service characteristics are outside the bounds of those prescribed terms, the service has had to directly negotiate with each copyright owner, or their representative, whose work might be used within the service.
This intent process is not necessarily efficient or affordable, however. Estimates of the number of points of contact for direct licensing or ‘noticing’ musical work copyrights vary substantially: from as few as 500 points, to as many as 6,000, to in excess of 30,000 potential points of contact. This variety depends upon how these rights holders are aggregated and how large the catalog of licenses is. That said, it may be no coincidence that a new cohort of music services were licensed and launched after 2008.
Fifth, the pathway through which innovation unfolds is largely similar across the services studied. Whether there is a right way or a wrong way to travel through the licensing pipeline, there is little variation in the way in which services make this trip. Furthermore, at any point over the last decade, it appears that no greater than two or three law firms, or individual lawyers and their staff, were most central in brokering directly negotiated licensing transactions.
For example, most services began the licensing process in discussions with one or more of the major labels. This initial stage might best be described as a ‘getting to know you’ conversation, during which both personal connections and basic service ideas were discussed. After a few months, the conversations shifted to more specific discussions of service features, pricing, if not also more technical white papers. The final months involved discrete discussions of licensing agreements, which saw between four and nine revisions over a span of one to four months. Once these major agreements had been negotiated, services shifted their attention to other aggregators of independent labels and artists.
Finally, while new services face an expectation to be novel — from the perspective of consumers, investors, and even copyright owners — service characteristics among competing services after launch seem quite similar. The variety in service characteristics that arrive at the table to be licensed appears to be somewhat greater than the service characteristics offered by services that launch as licensed. It is difficult to tell what would happen and what could be learnt by the industry from a much-expanded range of service characteristics.
While technology has historically paved the way for new developments in the music industry, it has both disrupted old business models and transactions over copyrights. Negotiating over music rights has become very complex, and the cost is not just measured in the price paid for a license. All the parties spend too much time, effort, and resources clearing every legal aspect in trade of recorded music. The cost for music startups is arguably large, and music right holders pay a hefty price too measured by the opportunity cost of losing new business. Whether the party is a copyright owner or a technology company, the process for procuring a music license weighs heavily all round.
By David Touve
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