Streaming Music Services — “Changing the Game”

Posted by: Vikram Amritraj

April 17, 2015

Jay-zlivein2010On March 30th, 2015 Jay-Z and a group of the 16 richest, most successful musical artists in the world held a press conference to announce the Tidal streaming music service, which some have claimed brings “the idea of paying artists back into the conversation” and has the “potential to move the conversation about art and how it should be valued.” Is it really fair to claim that Tidal or any other music service can fundamentally change the online music streaming landscape? The answer is probably “not even close” and here’s why…

Tidal claims that it is a “artist majority owned company” with the goal of “chang[ing] the status quo.” Aside from offering two tiers of subscription streaming ($9.99/month for standard quality 320 kbps audio and $19.99/month for “lossless” high fidelity audio) and exclusive editorial content, Jay-Z believes that his new company will ensure that content creators like producers and writers will be fairly compensated for their work.

Here are the facts: Jay-Z and 16 über-famous artists including Madonna, Kanye West and Daft Punk each own a 3% share of the company (apparently for the promise to provide exclusive content), and while Tidal asserts that it royalty distributions are fairer than competing services with free tiers, they have not disclosed any actual numbers. So here’s the multi-million dollar question: how can Tidal claim to “forever change the course of music history” in favor of artists if the only artists that really benefit are the super wealthy ones that had enough clout to trade their services for a 3% stake?

The answer is quite simply that it can’t. The parameters of the game are well established in copyright law, and the current state of affairs makes it an impossibility to get anywhere near the lofty realm of Jay-Z and Tidal’s purported expectations. The important legal provisions to consider when debunking these claims exist in Title 17 of the U.S. Code, most notably, §§102, 106 and 114.

As a preliminary matter, 17 U.S.C. § 102 describes the subject matter of copyright. §102(a)(2) provides a copyright to an author of “musical works” and §102(a)(7) provides a copyright to the author of a “sound recording.” It is important to understand that in any song, there are two copyrights involved – one in the musical work and one in the sound recording. The authors of the musical work are generally the writers and composers of the song while the authors of the sound recording are the performers and producers/engineers who affix the composition to the master recording. As a practical matter, authors of the sound recording usually give away ownership of the copyright to the record label to which they are signed in exchange for funding, advances and royalties. The distinction between the musical work and the sound recording is important in the case of the “public performance” right.

The 17 U.S.C. § 106 describes the exclusive rights of copyright holders. For purposes of this discussion, the important provisions are subsections (a)(4)-(6): the rights of public performance and public display. While (a)(4)-(5) give the copyright holders of musical works (among others) a broad right to perform and display the work publicly, these sections clearly leave out copyright holders in sound recordings. Subsection (a)(6) specifically gives copyright holders in sound recordings a limited public performance right by means of digital audio transmission. To figure out what this means we have to look deeper into the code.

17 U.S.C. §114 lays out the scope of exclusive rights in sound recordings and provides important distinctions between interactive vs. non-interactive digital services as well as subscription v. non-subscription transmissions. Subsection (j) describes a subscription transmission as one that is “controlled and limited to particular recipients, and for which consideration is required to be paid,” and an interactive service is one that “enables a member of the public to receive . . . on request, a transmission of a particular sound recording . . . which is selected by or on behalf of the recipient.” A quick look at subsection (d)(1) shows why these definitions basically dictate the services that music-streaming apps offer as well why certain services are only accessible behind a pay-wall.

17 U.S.C. §114(d)(1) places important limitations on copyright holders’ exclusive rights in sound recordings. In the digital realm, this section provides that the performance of a sound recording through a non-interactive, non-subscription digital service is not copyright infringement. Have you ever wondered why iTunes radio has limited choices for how you can tailor your “personalized” radio station? What about why Spotify’s free tier allows you to skip forward to the next song but doesn’t let you repeat the one you just played? The reason is §114(d)(1).

If these free services allow too much user choice, they will be lumped in the definition of interactive service, and therefore would have to pay royalties to the copyright holders of the sound recordings instead of just a minimal compulsory license fee to the copyright holders of the musical work. This arrangement isn’t new. In fact, there has never been a recognized public performance right for copyright holders of sound recordings in terrestrial radio. The notion of an interactive service emerged with the digital age, and thus Congress amended the code to give the copyright holders in sound recordings a limited recognized performance right for the first time [§106(a)(6)]. The higher cost of royalties in an interactive service is what necessitates the monthly subscription fee to the user.

So how are Jay-Z and his super-friends changing the music industry? Well, they’re not. What they’ve done is provide an interactive subscription only service in which royalties must be paid to the copyright holders of both the musical work and the sound recording, but this is no different than any other pay-to-stream interactive service. How about the fact that Tidal is artist-owned? I guess this makes a difference – but only to the artists that actually own Tidal. These performers will get their normal studio-negotiated royalties from streams every month (as they do from every other pay-to-stream service) but they will also get their 3% back end cut from Tidal itself. This really only benefits the super rich performers that signed on from day one, and any other artist that joins up afterwards will be contributing to the wealth of these original 16 artists (second tier artists and so on will receive continually decreasing percentages).

So what about trying to bring “value” back to music? One of the big talking points at the launch was Jay-Z’s statement that people “feel like music is free, but will pay $6 for water. You can drink water free out of the tap, and it’s good water. But they’re okay paying for it.” I think Jay and the rest of the artists really do feel like offering high quality audio and claiming that the artists are more fairly compensated will have an impact on how people “value” music. It’s admirable, but its just not true.

People know the difference between tap water and Fiji because of a sophisticated marketing blitz that tells us there’s difference even when there isn’t. But more importantly, bottled water is not an alternative to tap water; it’s an alternative to other novelty drinks like soda. Jay has the wrong idea here. Whether or not there is a difference between 320 kbps and lossless CD quality doesn’t matter, it’s whether people think there’s a difference and value that difference. I don’t think they do. Most people are listening to music on speakers and headphones that stifle that sound quality anyway so high quality music misses the point. The ‘value of music’ question is more a function of the market and less a function of sound quality.

The market tells us that we don’t need to value music. While it is illegal to download free music from torrent sites, there is no practical barrier to doing so. The record industry stopped suing customers years ago and the DMCA amendments (Chapter 5 and Chapter 11 of Title 17) to the copyright law, which aimed to curtail pirating of digital music, simply haven’t curbed the public’s insatiable appetite for free media. Basically, stealing music is illegal but no one is going to do anything about it if you break the law.

Returning to the bottled water metaphor, it’s probably more accurate to say that people pay $6 for a bottle of water because not only do they believe that Fiji is a valued commodity, but if they were to take a bottle off of the shelf at Wal-Mart and walk out without paying, they would probably face the consequences of theft. The deterrence factor of law enforcement is just one difference between the value of bottled water and music but I believe that the protection factor of the commodity before theft occurs is another, more important element. People don’t steal things from Wal-Mart because the items are under protection of the store. Where is the protection for music?

If one could steal anything with anonymity and impunity, the monetary value of everything would be zero. This is the state of the music industry today. A digital music file can be copied and transferred with anonymity and impunity; there is currently no way to protect it. Since we’ve figured out that enforcement in today’s climate ends in a high-price game of whack-a-mole, artists and labels need to find another way to protect their intellectual property.

Jay and his 16 wealthy Tidal buddies may be able to confuse enough people (and other artists) into joining their “revolution” and fatten their pockets in the process. However, if their goal were to truly bring value back to music, their time and money would be better spent joining with the record label overlords to invest in the creation of a new digital medium that could effectively be protected from piracy. Don’t get me wrong, that’s an enormous undertaking, and what form that will take is beyond the scope of this article (and my technical knowledge). However, it doesn’t change my belief that the music industry needs to embrace technology as a solution to their issues rather than simply hope people will value that, which the market has condemned. Music is important, and people need to invest in its protection just like everything else we deem important.


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