US Copyright Royalty Board Significantly Raises Rates on Streaming: Is it Enough?

The Copyright Royalty Board in the United States has issued an initial determination and accompanying regulations that raise the amount of royalty available to songwriters for streaming, which will impact services such as Pandora, Spotify, Apple and YouTube.  Variety has an excellent article on the impact of the decision, which seems substantial—almost boosting royalties by 50%.  Paula Parisi of Variety explains:

The ruling effects only the mechanical license, a term that literally references the rolls mechanically cranked through player pianos – arguably the first mass distribution media for recorded music. Albums, CDs and downloads also fall under the mechanical license (the thought being that like piano rolls, these are “physical copies,” although the idea that a digital stream is concrete by virtue of being stored at various points (on a server, in a buffer) is somewhat specious; analog broadcast signals also collect at various points, and digital radio and TV in practical terms is distributed in the manner of a stream.

But broadcasts – digital or analog – are considered a public performance, and garner what is currently a higher  “performance license” rate. Songwriter Rodney Jerkins illustrated the discrepancy in September at the Recording Academy’s District Advocacy Day in Los Angeles by sharing an accounting statement for “As Long As You Love Me,” a top 10 hit for Justin Bieber in 2012. By 2013, Jerkins’ stake in the song generated $146,000 in performance royalties, while streaming revenue from the same period garnered $278 for 38 million Pandora plays and $218 for 34 million YouTube streams. “If I owned 100 of the song I would have made $1,100 from YouTube,” Jerkins said, proclaiming, “Those numbers are criminal.”

The article explains how arguments for the lower rate were justified because of the need to allow the industry to grow.  Of course, once the industry grows there are public choice issues associated with an industry’s attempt to maintain benefits or lack of regulation to allow the industry to flourish.  Even at a 50% increase, the songwriter will still only receive around $560 for 38 million Pandora plays under Jerkins' example.  It looks like we’re still trying to give the streaming business more time to mature. 

YouTube Tears Up the Play Book: High Noon or Rising Sun?

As I gear up for the fall semester of my MBA course, the pedagogical word for the moment is "tearing up the playbook". That wonderful piece of imagery, taken from the world of team sports, is particularly apt when considering the challenge of monetizing contents on the internet. In the sports world, "tearing up the playbook" evokes the sight of a coach who is forced to ignore everything that he has learned in the face of a fundamentally altered set of circumstances on the playing field.

Something like that is going on with respect to online content, where the traditional models for monetizing copyright content are proving increasingly unworkable, giving way to uncertainty, if not down right fear and trembling, about how to extract revenues. The challenge in the classroom is to explore with students how IP rights impact, and are being impacted, by the search for workable business models. The effort is very much in a work-in-progress, as we collectively tear up the play book in the teacher-student exchange.

For the print media, the current buzz word is micropayments, which seems to mean charging for discrete items of content, usually as a premium offering that complements contents that are offered for free on the internet. Micropayments can be viewed as an alternative to an ad-based or subscription model for monetizing print contents. Be it the Financial Times, The Wall Street Journal, or Scientific American, the aim is condition readers to expect to pay for at least part of the fare offered on the website. The challenge is to recondition users to pay for contents that they have been receiving (or believe that they have been receiving) for free. Will anyone pay for these contents; if not, who will be creating these contents? This dynamic is progressing apace, and we will follow it carefully.

But, for the moment, let us focus on the struggle that is taking place with respect to visual content. Here, the copyright dynamic is different, characterized by a bifurcated world of visual content creation in which the amateur (for lack of a better term) exists alongside the professional. There is no better example than YouTube, especially since its acquisition by Google in 2006. Against this backdrop, the 3 September report entitled "YouTube Moving Toward Paid Content" under the byline of Kenneth Corbin, is of particular interest. The article reports that Google is negotiating with Hollywood studios

"for a three-month trial that would see YouTube begin offering streaming movie rentals ahead of the title"s sales date, with the studios receiving 60 percent of the revenues ...."

The article goes on to mention that the arrangement, if it takes place, will follow similar arrangements reached by the studios with Amazon and iTunes.

The changing role of copyright in this proposed arrangement is fascinating. As we remember, when Google acquired YouTube, it reportedly budgeted a six-figure sum to address potential copyright infringement claims by professional copyright owners. The emphasis then seems to have been on maintaining the user-generated experience resting on the contributions of millions of amateur contributors, while fending off claims of copyright infringement that might have a materially deleterious affect on this experience. The relationship with professional contents owners was distinctively adversial.

The user-experience created an unparalled platform for capturing eyeballs interested in visual contents online. Revenues were a different story. How different can be seen by this most recent announcement. For Google, the transformation marks a potentially major shift in the way that it views the role of professional contents on the platform. No longer an adversary but a partner, the proposed arrangement underscores YouTube as a distribution platform, the value of which rests on its user base. With a reported nearly 8.95 billion (!) video sites viewed monthly on Google (read mostly YouTube), Google may be close to its High Noon monetizing moment. Are its viewers attracted by a distinct YouTuve viewer experience, or will the availability of commercially streamed contents drive users to other, more pristine sites? Stated otherwise, what will be the dynamics of the YouTube network effect when the platform creates an environment where "free" rubs up against "non-free".



For the studios, there is the realization, which has been true of all content providers since the rise of authors in 17th century England, that copyright is as much about the means of distribution as the act of creation. DVD sales appear to be in a spectacular decline, necessitating an urgent search for new means of distribution. YouTube offers one attractive possiblity, but it is not the only online platform that studios can potentially partner with to distribute their products. That suggests a certain assymetry in the content provider-distributor relationship. If YouTube proves to be a bonanza distribution platform, there will be a win-win situation. If not, content owners can presumably move on until they find a satisfactory online distribution model. In such a situation, what happens to the long-term viability of YouTube in this latter situation must be at the back of the minds of its owners, as they work on their play book for turning YouTube into a leading platform movie streaming.