Why do music streaming services like Pandora, Google Play, and Spotify place so many restrictions on users?

by | Jul 15, 2017 | COPYRIGHT LAW, MUSIC LICENSING | 0 comments

According to the Recording Industry Association of America (RIAA), which represents the major music industry labels, streaming music helped drive an 11% increase in music sales in 2016. Streaming revenues increased 69%, representing a majority of the industry’s sales (51%) for the first time in history.[1] This figure represents a dramatic shift from the early 2000’s when more than 80% of revenues came from the sale of physical copies (CDs, Vinyls, and Videos).[2]  The digital revolution has transformed the music industry over a few short decades, allowing on-demand wireless access with the touch of a button.

With options ranging from Pandora and Spotify to Slacker and Tidal, the sheer number of service providers and plans can be intimidating. While technology continues to advance at a dizzying pace, lawmakers have struggled to keep up. As a result, content providers have developed unique business models in response to evolving copyright laws.

How is music streaming currently regulated?

The Digital Millennium Copyright Act (DMCA) made many changes to the U.S. Copyright Act in response to the mounting challenges of a digital world. Among these changes, the DMCA laid out the guidelines for ephemeral(temporary) recordings and the “webcasting” of sound recordings on the Internet.[3]

Under the DMCA, webcasters are required to obtain two compulsory licenses in order to cast sound recordings over the web. 17 U.S.C. § 114 requires webcasters to obtain a license for the actual sound recording, known as the “Section 114 License.”[4] 17 U.S.C. § 112 further requires webcasters to license the right to create ephemeral copies to facilitate the transmission of sound recordings, known as the “Section 112 License.”[5] No matter the subscription format, webcasters must obtain both licenses to avoid violating U.S. Copyright Law.

How much does a streaming license cost?

Royalty rates for these compulsory licenses are currently set by the Copyright Royalty Board (CRB). In December 2015, the CRB released royalty rates through the year 2020, subject to annual adjustment for cost-of-living increases:[6]

  • Non-subscription(free) services must pay $.0017 per performance (per song, per listener), or $1.70 per 1000 performances.[7]
  • Subscription services must pay $.0022 per performance, or $2.20 per 1000 performances.[8]

The CRB royalty system encompasses both compulsory licenses, with the Section 112 License constituting 5% of the total fee.[9] Each individual sound recording streamed by a user is considered a separate “performance,” requiring payment of the applicable fees.

What other restrictions are placed on streaming services?

While paid subscription services pay a higher royalty rate, fewer restrictions are placed on both the user and provider. In addition to paying royalties, non-subscription services must place further limits on user activity. To maintain its compulsory licenses, a non-subscription service must meet the following requirements:

  • The webcaster cannot provide automatic switching between channels.[10]
  • The webcaster cannot transmit more than two recordings from the same album consecutively and no more than three recordings from the same album in three hours.[11]
  • The webcaster cannot broadcast more than four different recordings from the same recording artist or set of recordings.[12]
  • Song titles cannot be announced in advance.[13]
  • The name of the recording artist, song, and album must be included in textual form with every transmission.[14]

Are there any exceptions?

The licensing and streaming of sound recordings is a complex system. The restrictions above primarily apply to commercial web streamers dealing with music. Non-commercial services, on the other hand, pay a basic rate of $500 per year, per channel.[15] Only after reaching a certain yearly threshold (159,140 hours streamed) will a non-commercial provider be assessed the standard $.0017 per performance rate.[16]

Are all types of sound recordings regulated like music?

No. Longer sound recordings (speeches, lectures, etc.) and the streaming of recorded “programs” are regulated even further than music recordings:

  • Any continuously looped program must be at least three hours long.[17]
  • Programs less than one hour, containing sound recordings in a particular order, can generally be rebroadcast no more than three times in any two-week period.[18]
  • Programs more than one hour, containing sound recordings in a particular order, can be rebroadcast no more than four times in any two-week period.[19]
  • Any archived programming must be at least five hours long and cannot be made available for more than two weeks.[20]

As the scope of streaming continues to expand, a growing list of regulations are likely to follow.

What about the future of streaming?

While the worlds of streaming and copyright have currently achieved a complex balance, such harmony is unlikely to last very long. Streaming has already grown beyond the confines of music to include movies, television, lectures, talk shows, and even sporting events. As technology continues to advance, it is impossible to predict what new issues may arise. However, with aspiring performers increasingly seeking fame through live-streaming services, the new frontier of copyright regulations may not be so hard to imagine.

 

[1] Ben Sisario, Streaming Drives U.S. Music Sales Up 11% in 2016, N.Y. Times, Mar. 31, 2017, at B2.

[2] Ben Sisario & Karl Russell, In Shift to Streaming, Music Business Has Lost Billions, N.Y. Times, Mar. 24, 2016, at B1.

[3] Digital Millenium Copyright Act (1998).

[4] 17 U.S.C. § 114.

[5] 17 U.S.C. § 112.

[6] 37 CFR § 380.10(c).

[7] 37 CFR § 380.10(a)(1).

[8] Id.

[9] 37 CFR § 380.10(d).

[10] 17 U.S.C. § 114(d)(2)(A)(ii).

[11] 17 U.S.C. § 114(d)(2)(C)(i), (j)(13)(A).

[12] 17 U.S.C. § 114(d)(2)(C)(i), (j)(13)(B).

[13] 17 U.S.C. § 114(d)(2)(B)(ii).

[14] 17 U.S.C. § 114(d)(2)(C)(ix).

[15] 37 CFR § 380.22(a).

[16] Id.

[17] 17 U.S.C. § 114(j)(4).

[18] 17 U.S.C. § 114

[19] Id.

[20] 17 U.S.C. § 114(j)(2).

 

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