22 November 2014

Behind The Scenes Epic Battles For The Future Of Music

About a month ago, Pandora dropped its lyrics service within its music streaming service without publicly acknowledging the change anywhere except a backhanded update to a seven year old post on one of its blogs.

There has also been a fierce and largely unreported fight as Pandora has struck a deal with an outfit called MERLIN that licenses music from many independent music labels at a rate about half as rich as what major labels are paid under a Copyright Royalty Tribunal ruling.

While most forms of intellectual property licenses are governed purely by contractual agreements, the "little rights" in music (i.e. the right to play and cover music in formats like radio as opposed to the "big rights" to have music used in movies and TV shows) can be used unilaterally by radio stations and certain other radio station like entities like Pandora that stream music, if exchange for a royalty determined not be negotiation, but by the Copyright Royalty Tribunal, in what amounts to a legally authorized efficient breach of contract not allowed in other parts of copyright law.  (Efficient breach is when you intentionally breach a contract and pay damages because that is cheaper than performing the contract.)

The MERLIN deal is controversial because it involves "payola", i.e. playing a song more often for a monetary inducement, something that was banned in the radio world decades ago because it was considered a form of corruption in the music marketplace.

But, the MERLIN deal is also an effort to renegotiate the Copyright Royalty Tribunal rates for non-independent label music which is much more expensive, on the grounds that the MERLIN deal is a bona fide arms length deal between a willing seller and willing buyer that is a reference point for setting royalties when they are determined by the tribunal rather than negotiated.

There are other elements of the epic behind the scene battles.  Aereo, a company that tried to create free streaming of broadcast television was batted down in a U.S. Supreme Court fight, leading to its bankruptcy this week, but while Aereo lost the battle, it may have won the war, with the FCC formulating new rules to allow essentially the same services under an FCC regulatory framework with a Copyright Royalty Tribunal model.

The tribunal and related legislation drive the economics of all sorts of streaming media, satellite TV, cable TV, broadcast TV and essentially the entire electronic media world.

Maddeningly, however, in a world well companies like Pandora will only grudgingly and backhandedly acknowledge a sea change in their policies and won't publicly explain exactly why they did it, it is very hard to know what is going on in this demi-monde of media economics and law.

This is not the first time things like this have happened.  For example, a flourishing online world of fans who translated Japanese and Korean manga into English on a volunteer basis, largely in the absence of a commercially available alternative since the works were not being translated by the copyright owners, vanished, almost overnight a few years ago, without so much as a newspaper story in a mainstream American newspaper in a coordinated legal effort by manga publisher's lawyers.

Outside the area of media, the most similar case involves the reformulation of dishwashing soap for environmental reasons in an unannounced change that impacted hundreds of millions of people in their daily lives without their knowledge.

Efforts to make movies available online have been rather more resilient, and have been hurt more by legal alternatives like Netflix and Hulu and Amazon Prime, than by legal action, despite relentless efforts to shut down these operations.

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