“You Never Give Me Your Money, You Only Give Me Your Funny Paper”:

A Case for the Revision of Internet Radio’s

Compensation Practices

By Mary Morris May 7, 2015

Table of Contents:

Executive Summary 3

Because I’m Happy? 4

Can’t Get You Out of My Head 7

The Day the Music Died 9

We Never Go Out of Style 13

Wake Me Up 15

Just Keep Chasing Pavements 18

Bibliography 20

2

Executive Summary

In November of 2014, the relationship between artists and digital music streaming

services changed dramatically as Taylor Swift pulled her entire music catalog from Spotify,

resulting in a very public and highly debated stance on the compensation of creatives in the

music industry. Following Swift’s decision, other artists have come forward sharing the

unfair compensation they’ve received from work considered global hits. While the issues of

copyrights and royalties in the creative industries are historically complicated, the music

industry has reached a tipping point that demands legal attention and likely the revision of

copyright laws that have gone on revised since 2001 and the iPod’s launch.

Copyright laws first became established in the United States in 1790, to encourage

and defend the creation of intellectual property. While the industries requiring copyright

protection have grown and developed, the laws have not kept up at adequate pace. The

royalty rates and compensation standards set by copyright policies have resulted in an

unbalanced industry where the creatives that drive production are undervalued and verge

on the inability to continue the develop the creation of new music.

Although many years behind the need for new legislation and policy, the U.S.

Department of Justice has the opportunity to prompt change in its review of ASCAP and BMI

consent decrees, while the Librarian of Congress and Register of Copyrights could have the

opportunity to revisit the royalty rates that have stood since 2002. The refusal to adapt

copyright policy to the current technology and consumption patterns influencing the music

industry has the potential to instigate the collapse of the industry as songwriters,

composers, and other creatives will likely not be sustained under the current circumstances.

3

Because I’m Happy?

The United States has prided itself as a nation that incentivizes its citizens to engage

in development of intellectual property. While this might have been the case centuries or

decades ago, the laws governing intellectual property have not kept pace with technological

developments impacting distribution. In 2000, copyright regulations stipulated that Internet

radio stations “pay mechanical royalties to record companies for music that the stations

stream over the Web” (Creech 242). However, “this fee is different from the fee paid to the

performing rights societies; it’s paid directly to the recording companies;” a difference that

begins to take undermine the creatives, such as songwriters and musicians, in favor of the

larger corporate powerhouses that are recording companies (Creech 242). Additionally,

“the Copyright Office proposed royalty rates for Internet-only transmissions,” in which a

panel proposed royalty rates of $0.14 per song per performance per listener and a $500

yearly minimum fee (Creech 242). However, the Librarian of Congress and the Register of

Copyrights rejected this proposal in favor of a $0.07 royalty rate (Vankevich).

Since the Librarian and Register’s determination of royalty rates for the music

industry, the iPod has gone through several generations, smartphones have become wide

spread technologies, the iPad has been invented, and consumers are accessing media

through a host of new technologies and businesses. Although television and film receive

significant press resulting from industry changes spurred on by the creation of Netflix and

Hulu, the continuously evolving streaming capabilities of new technology and the digital age

has had significant influence over the music industry as well. In an age where media can be

streamed through almost any device with a screen and wifi connection, the legislation that

once promoted the creation of new creative works has become oppressive to the people it

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was meant to encourage. While the freedom and size of the Internet alone makes it difficult

to regulate piracy, streaming services like Pandora and Spotify have effectively helped lower

music piracy by providing legal access to music that is still free and convenient. As a result,

business and technology seem to be keeping pace with one another.

However, the role of the Copyright Office to enforce and establish rules that protect

creative, intellectual development its creators has been compromised by the same services

that are helping provide legal alternatives to piracy. The Librarian and Register have not

revisited royalty rates, despite the drastic changes in technology and digital consumption

over the last thirteen years. The widespread increase in digital streaming consumption

changes the pay an artist can expect on his product. For example, since the iPod, consumers

can pick and choose exactly what songs they want to purchase as opposed to buying a whole

album. Additionally, streaming radio services now provide free options that circumvent

song purchase all together. This audience shift to free services for their music consumption,

leaves artists with a dent in their income and a reliance on the $0.07 royalty per listen

established by the Copyright Office. However, this compensation is not enough for an artist

to thrive.

Although streaming services provide artists with a means to reach greater audiences

and can lead listeners to record or concert ticket purchases, Spotify and Pandora have the

potential to reap more benefits from an artist’s work than the artist herself. For instance,

last year’s hit song “Happy” netted its songwriter and publisher Pharrell Williams just

$2,700 from Pandora, despite achieving an impressive 43 million listens in the first quarter

of 2014 (Kosoff). Considering the success and notoriety of Williams, the fact that a song

deemed successful earns the artist less than $3,000 in a quarter is worrisome for lesser-

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known artists. Although Fusion’s Rob Wile states that according to industry analysts

“Pharrell would likely have earned approximately $25,000 from the 43 million plays” with

the addition of performance rights royalty rates, Sony/ATV CEO Marty Bandier believes the

compensation standards of streaming services has created “a totally unacceptable situation

and one that cannot be allowed to continue” (Kosoff).

While Wile’s argument presents the benefit artists receive through other royalty

standards, the information does not diminish the fact that the changing revenue streams for

creatives in the music industry are not represented in the current copyright regulations. As

Lawrence Lessig writes in Free Culture, “policy makers should not make policy on the basis

of technology in transition. They should make policy on the basis of where the technology is

going” (297). Although government has not kept up with the technologies compromising

the previous standards of copyright law, there is still the potential to revise for the future.

This problem is not uniquely American and can find models across the globe mirroring the

same transitions in policy, as earlier this year, Swedish songwriters have petitioned for fair

compensation pushing the Swedish Society of Songwriters, Composers, and Authors to

negotiate digital revenues on their behalf (Schneider). The music industry is structured in

such a way that the creative behind the lyrics and melodies are often overlooked. The record

labels, producers, and performers tend to soak up a significant portion of the spotlight and

revenues, while those creating the backbone and content of the industry are being

overlooked. In order to insure the future of music as we know it, songwriters and other

behind the scenes creative need to be fairly compensated in order to sustain the creative

process and the industry.

6

Can’t Get You Out Of My Head

While controlling physical property has a tendency to be cleaner cut, the protection

and management of intellectual property can be more complicated because of its

intangibility. The general understanding of intellectual property is that “it is possible to

acquire legal rights to control innovations and other idea product. Reciprocally, one may be

obliged to observe certain duties with respect to them” (Anawalt 4). The concept of

intellectual property laws resulted from attempts to encourage creative thought and

invention by incentivizing creators with a period of idea protection. Overtime the

regulations have been applied and adjusted to such intellectual products as books,

television, film, photography, and music. In order to regulate the diverse world of

intellectual property, there are different protections including patents, copyrights, and

trademarks. While trademarks are utilized in the music industry, copyrights play the

greatest role in the music industry.

Initially created and adopted in 1790, the first federal Copyright Act “protected

books and maps from unauthorized use for a 14-year renewable term” (Creech 210). While

other medias and arts were incorporated under revisions of the law in the following

century, it took until 1978 for sound and video copyrights to become implemented (Creech

210). Since 1978, the basic copyright statutes have only been revised twice “to

accommodate the emergence of new technologies” (Creech 210). Considering the speed at

which the Internet and technology has been developing in just the last twenty years alone, it

is hard to believe that only two revisions have been necessary to accommodate these

transitions.

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The copyright laws that are currently active are intended to serve the copyright

owner by giving them the exclusive rights to the following:

(1) To reproduce the work… (2) To prepare derivative works based on the original

(3) To distribute copies…to the public by sale or other transfer of ownership, or by

rental, lease, or lending (4) To perform the copyrighted work publicly…

(5) To display the copyrighted work publicly. (Creech 210-211)

Kenneth Creech explains in Electronic Media Law and Regulations that “a copyright protects

the expression of ideas, not the ideas themselves. The historical fact that someone died is

not copyrightable, but a particular version of the death is copyrightable” (211). This

interpretation of copyright and intellectual property rights is what allows news programs to

run the same stories as long as they provide different writing, audio, and visual than their

competitors. This understanding of copyright law also allows creatives to seek inspiration

from current copyrighted works, although the creation of derivatives is a right reserved by

the copyright holder. Derivative works in art is where copyrights get complicated, as Joanna

Demers writes in Steal This Music, “allusion, the incorporation of aspects of others’ style or

work into one’s own, was an ethical gray zone, sometimes hailed a skillful genius and at

other times discounted as lack of inspiration” (29). While Demers argues that copyrights

have made creativity in music more challenging, she also attributes part of the problem to

the framing of copyright law, which she believes “the true beneficiaries of recent IP law

changes are neither the authors nor consumers, but rather corporate content providers”

(12).

8

The Day The Music Died

Copyright laws have a tendency to the big corporations and record labels instead of

the songwriters and creatives its intended to. Demers writes, “these [nineteenth century]

modifications assume that if IP law worked during the nineteenth century, then more of the

same IP law will work even better in the twentieth and twenty-first centuries” (23). The

complications of this mindset allows for copyright laws to go unchanged over the course of

centuries and seems to encourage consistency as opposed to the ideas of forward looking

policy expressed by Lessig. The changes that were instituted seem to focus on the lifespan of

copyright privileges as opposed to addressing the compensation rates associated with

newer technologies and trends, as Demers explains:

the majority of changes to the copyright regime, for instance, have expanded wither

the lifespan of the scope of protection; these amendments fail to acknowledge new

modes of cultural production… that challenge our definitions of borrowing and

infringement. (23)

The extended lifetime of a copyright allows record labels to continually profit from the work

as “the copyright duration for a musical composition has increased from its original

duration of fourteen years to its current limit of the composer’s life plus seventy years”

(Demers 23).

The extended lifetime of the copyright does not necessarily benefit the composers and

songwriters, as the gray area of allusions and derivatives creates obstacles to the natural

development process. For instance, Pharrell Williams and Robin Thicke were recently sued

for copyright infringement of Marvin Gayes’s “Got to Give It Up” in their song “Blurred

Lines.” Although Williams is considering fighting the verdict in an appeal, the current

9

verdict is a $7.3 million payout to Gayes family (Kerps). The controversy has sparked

renewed interest in the regulation of creative processes adopted by composers and

songwriters as Williams says, “the verdict handicaps any creator out there who is making

something that might be inspired by something else… if we lose our freedom to be inspired,

we’re going to look up one day and the entertainment industry as we now it is going to be

frozen in litigation” (Kerps). Williams goes on to say, “This is about protecting the

intellectual rights of people who have ideas,” identifying the flaws in the current copyright

legislation (Kerps).

Despite the constraints on artists created by the longevity of copyright privileges, the

record companies and labels have an incentive to maintain these statutes as they reduce

competition and the lifespan of the hit records they cash in on. The film industry offers a

comparable example as the copyright registration of a published or an unpublished film can

result in a maximum 75-year copyright certification, a timespan resulting from the lobbying

of Disney to extend their copyrights and reduce the ability for competitors to create

derivative works from Disney classics (Lee). The same is true of music, in that the record

labels will continue be paid for the use of hit songs for the life of the copyright, which means

that they would be economically motivated to maintain the longest possible timespan for

their copyrighted material.

The changes in technology have allowed the potential licensing revenues to increase,

while making the enforcement of these terms more difficult. Lessig explains the freedoms

presented by the changes in technology when he writes, “in the next ten years we will see an

explosion of digital technologies. These technologies will enable almost anyone to capture

and share content” (184). Written in 2004, Lessig’s predictions have become reality.

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YouTube alone is littered with user created covers, home videos set to popular music,

homemade music videos, mashups, and many more variations of content sharing. The

development of Internet radio services like Spotify and Pandora are further extensions of

the culture of collect and share that has become prevalent thanks to technological

development.

Spotify and Pandora have adopted to the changing consumption patterns of the music

industry and have done so successfully by creating services that are legal, free, and simple

for consumer use. Spotify recognizes the conflicts surrounding the changing consumption

trends of the industry on “Spotify Explained,” where Spotify writes, “Unfortunately, the

majority of music consumption today generates little to no money for artists. We are

working hard to fix this, and are proud to offer music fans a legal and paid service capable of

generating for artists the royalties that they deserve.”

Graph 1: The Decline in the Record Music Industry Provided by “Spotify Explained”

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Similarly to Pandora’s business model, Spotify’s goal is to present an option for listening to

music that results in some kind of compensation for artists and copyright holders, and

hopes that their services will regenerate the decrease in music sales as indicated by the

Graph 1. So far Spotify seems to have made significant progress in reducing the pirating of

music. Graph 2 indicates the success Spotify has experienced in reducing piracy in favor of

legal methods (“Spotify Explained”). However, even for all the positive influences Spotify

and Pandora provide artists by facilitating services that respect the difficulties facing artists

in a changing industry, the services themselves benefit from the copyright policies that

allow them to pay minimal royalties to the artists they appear to be helping.

Graph 2: Percentage of Each Age Group Who Choose to Pirate Less as Indicated by Spotify12

We Never Go Out Of Style

The relationship between songwriters, copyright statutes, and digital streaming

radio services is complicated to say the least. Although cutting down on piracy and

providing an alternative that results in pay and listeners for artists, services like Spotify and

Pandora appear to operate similarly to the record labels and have taken advantage of the

dated copyright laws to obtain rights cheaply. The combination of factors leaves the

songwriter in a precarious position, where penning a number one track does not equate to a

survivable wage, especially if the author has not yet achieved star status.

Some, including Spotify, believe that the Internet radio services provide artists with

an income that they otherwise would not have received because of piracy. Spotify explains

that the company distributes nearly 70% of the revenues received through advertising and

subscription fees to rights holders (“Spotify Explained”). However, this 70% is distributed

based on the popularity of a song and does not go entirely to songwriters or artists. Instead,

that portion of the revenues is given directly to the label or publisher, who then distributes

the royalties to each artist based on their deals. (“Spotify Explained”). While the 70% seems

large, in actuality the labels and publishers are making most of the income.

Now, people might find it easy to put the blame back on the labels and publishers,

which isn’t wrong as they are also taking advantage of the copyright systems. However,

Spotify is still complicit in the system that provides minimal compensation to artists.

Although copyright legislation is stipulated as $0.07 per listen, Spotify claims, artist

royalties are calculated using a formula dependent on the following variables:

in which country people are streaming an artist’s music, Spotify’s [number] of paid

users as a [percentage] paid, higher ‘per stream’ rate, relative premium pricing and

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currency value in different countries, and an artist’s royalty rate. (“Spotify

Explained”)

The reverse calculating to achieve the per stream payout indicates that Spotify pays an

average between $0.006 and $0.0084 (“Spotify Explained”). Although Spotify goes out of its

way to explain that they consider the per stream metric to be a flawed unit that does not

accurately represent the services value to artists, the Copyright Office seems to believe the

measure is suitable for the industry. Using the metric, the calculated average seems

incredibly low compared to the standard set by the Copyright Office and puts into

perspective the pay Spotify is providing.

Graph 3: Spotify’s Growth in Royalty Payments to an Anonymous Current Global Star

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Spotify further defends itself by demonstrating the royalty payouts of a current

global star as seen in Graph 3. While the graph indicates the payout before it is divided

amongst record and label executives, it also indicates the pay expected for a global star.

However, the pay that Spotify provides a particular global star can be assumed to be

drastically different from the payout a lesser known artist, songwriter, or composer earns

from the company.

Songwriter and recording artist Aloe Blacc provides an example of the disparity

between one global star and the rest of the music industry. In an article Blacc wrote for

WIRED, Blacc details his experience as a successful songwriter and performer on Internet

radio platforms and the compensation that failed to reflect this success. As a singer and co-

songwriter on Avicii’s “Wake Me Up!,” Blacc says that despite being “the most streamed song

in Spotify history and the 13th most played song on Pandora since its release in 2013, with

more than 168 million streams in the US,” only received $12,359 . After splitting the

royalties between songwriters and publishers, Blacc says, ” I’ve earned less than $4,000

domestically from the largest digital music service.” Blacc’s success on “Wake Me Up!” could

allow him to be considered a global star, however the global star evaluated by Spotify’s data

does not reflect Blacc’s compensation. Considering the disparity between the royalties paid

to global stars, songwriters, artists, and composers of music deemed any less than a hit are

presumably making much less. As a result Blacc writes, “the music they love won’t exist

without us, and that we, as songwriters, cannot continue to exist like this… After all, if

songwriters cannot afford to make music, who will?” (Blacc).

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Wake Me Up

In order to insure the continuation of the music industry, the Librarian and Register

as well as the U.S. Department of Justice, which according to Blacc has opened a formal

review of ASCAP and BMI consent decrees, has the opportunity to recognize this need for

change regarding the compensation of creatives in the changing music industry (Blacc). The

creation of music streaming services is not detrimental to the music industry, but it has

exposed the outdated features of copyright law in music. In order to better the relationship

between these services and artists these policies need to be reviewed with the goal of

achieving Lessig’s recommendation that policy be made “on the basis of where technology is

going” (297). In adopting this perspective, copyright policy can attempt to anticipate

changes to the music industry instead of playing catch-up.

In Free Culture Lessig considers his own solution to the issues surrounding copyright

laws and, in doing so, cites Harvard law professor William Fisher’s proposal that:

all content capable of digital transmission would (1) be marked with a digital

watermark… entrepreneurs would develop (2) systems to monitor how many items

of each content were distributed. On the basis of those numbers, then (3) artists

would be compensated. The compensation would be paid for by (4) an appropriate

tax. (301)

Although Fisher’s proposal aims to replace the current copyright system, Lessig’s proposes

that Fisher’s method complement the current system and that the taxation system could be

kept or disbanded depending on its continued necessity (301).

While Lessig and Fisher’s proposal is one option for a solution, another option is to

revisit the suggestions posed by the panel in 2002, which were eventually rejected by the

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Librarian of Congress and the Register of Copyrights. While the recommendations made

over a decade ago will likely no longer be relevant, the consideration a flat rate licensing fee

and adjusted royalty rates would be valuable in creating a new minimum standard of

royalty rates that would incentivize the songwriting and creative community. A concern

with this approach would be that Spotify is already paying roughly 70% of its revenues in

royalties that aren’t making it to the creatives. The implementation of this strategy would

require Spotify and Pandora to increase the cost to advertise on their services as well as the

possible increased price or new tier of premium services, all of which seems feasible for

companies with growing consumer bases. The revision of legislation should also consider a

reduction to the longevity of copyright registrations as the current circumstances play more

the benefit of publishers and record labels than to the authors and artists themselves. In

overhauling this regulations, the Copyright Office has the opportunity to return to the initial

goals of the copyright laws to provide “a short-term economic incentive (i.e., royalties) that

encourage authors to create” by allowing for the flexibility of allusions to exist within reason

(Demers 12).

An additional example of changes being made to the relationships between

streaming services, record labels and publishers, and creatives is the renegotiating

movement taking place in Sweden. In February of this year, the unfair compensation from

digital music streaming service to songwriters in Sweden reached a tipping point as 133

songwriters and producers signed an open letter to the industry regarding the unbalanced

approach to the distribution of digital revenues (Schneider). Marc Schneider’s article for

Billboard states, “the letter cites a survey by global authors’ rights body CISAC which found

that songwriters are ending up with only 3 percent of streaming revenue from Spotify in the

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U.S., with the rest going to labels and publishers.” While the survey was not conducted in

Europe, those affected believe there is probably little difference between the statistics in

their own countries. Additionally, the letter raises concerns that “songwriters can’t rely on

touring and merchandising revenue for income,” unlike some of their creative counterparts

in the industry (Schneider). Although the Swedish Soceity of Songwriters, Composers and

Authors has the capability to negotiate directly with labels and streaming service, while its

American counterpart ASCAP requires government action for drastic change, the three

staged model proposed in Sweden could offer some guidance to the United States. The

Swedish proposal calls for greater transparency, “an allocation model that allows the whoel

industry to thrive, not just the record labels and distributors who live on the values we

musicians produce,” and increased efforts by streaming service to “add credits to

songwriters and producers” (Schneider).

Just Keep Chasing Pavements

The copyright regulations in the music industry have long outlived their relevance,

resulting in the culture of undervaluing creative work. Creatives in the industry have finally

reached a tipping point as Pharrell Williams and Robin Thicke face a copyright verdict that

could intimidate creativity in the industry, Taylor Swift pulls her entire catalog from Spotify,

Swedish songwriters and producers demand greater compensation and recognition, and

Aloe Blacc and Pharrell Williams reveal the disparity between acclaimed success and

compensation. The speed at which technology and consumption patterns change creates

and reveals fissures in the copyright policies ability to protect the creators it was intended

to.

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While each proposed solution has its own difficulties, the fact that there a multiple

options for solutions is encouraging as we have not yet limited our ability to amend the

situation. However, if the U.S. Department of Justice, Librarian of Congress, or Register of

Copyrights fails to remedy the complicated situation, the collapse of the music industry is

possible as songwriters will no longer be able to earn a living wage even after achieving

global success. The relationship between songwriters and services like Spotify and Pandora

is not fundamentally harmful to the industry, but with lenient regulations companies are not

likely to pay more than is necessary. Addressing the changing technology and consumption

of industry products, will replace the emphasis on art and culture and creative development

that American and global society values so highly. With decreases to music education

funding occurring across the nation, the government has the opportunity to acknowledge

the value of musical art in revising the copyright and royalty policies governing the industry.

As Blacc wrote, “If songwriters cannot afford to make music, who will?” The choice to

maintain the current standards will be a decisive choice to diminish, if not kill, the creation

of new music in the United States.

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Bibliography

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"ASCAP Announces U.S. Licensing Agreement With Spotify." ASCAP. The American Society of Composers, Authors, and Publishers, 14 July 2011. Web. 06 May 2015. <http://www.ascap.com/press/2011/0714_licensingagreement-spotify.aspx>.

Blacc, Aloe. “Aloe Blacc: Streaming Services Need to Pay Songwriters Fairly.” WIRED. Conde Nast Digital, 5 Nov. 2014. Web. 14 Apr. 2015. <http://www.wired.com/2014/11/aloe-blacc-pay-songwriters>.

Creech, Kenneth. Electronic Media Law and Regulation. Fourth ed. Oxford: Focal, 2003. Print.

Demers, Joanna. Steal This Music: How Intellectual Property Law Affects Musical Creativity. Athens: U of Georgia, 2006. Print.

Kosoff, Maya. "Pharrell Made Only $2,700 In Songwriter Royalties From 43 Million Plays Of 'Happy' On Pandora." Business Insider. Business Insider, Inc, 23 Dec. 2014. Web. 06 May 2015. <http://www.businessinsider.com/pharrell-made-only-2700-in-songwriter-royalties-from-43-million-plays-of-happy-on-pandora-2014-12>.

Kreps, Daniel. "Pharrell Talks 'Blurred Lines' Lawsuit for First Time." Rolling Stone. N.p., 19 Mar. 2015. Web. 07 May 2015. <http://www.rollingstone.com/music/news/pharrell-talks-blurred-lines-lawsuit-for-first-time-20150319>

Lee, Timothy B. "15 Years Ago, Congress Kept Mickey Mouse Out of the Public Domain. Will They Do It Again?" Washington Post. The Washington Post, 25 Oct. 2013. Web. 07 May 2015. <http://www.washingtonpost.com/blogs/the-switch/wp/2013/10/25/15-years-ago-congress-kept-mickey-mouse-out-of-the-public-domain-will-they-do-it-again/>.

Lessig, Lawrence. Free Culture: How Big Media Uses Technology and the Law to Lock Down Culture and Control Creativity. New York: Penguin, 2004. Print.

Schneider, Marc. "Swedish Songwriters Push for Fair Share of Streaming Music Revenues in Open Letter." Billboard. N.p., 17 Feb. 2015. Web. 07 May 2015. <https://www.billboard.com/articles/business/6473048/swedish-songwriters-streaming-revenues-stim-open-letter>.

"Spotify Explained." Spotify for Artists. Spotify, n.d. Web. 06 May 2015. <http://www.spotifyartists.com/spotify-explained/>.

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Vankevich, Peter. "Royalties and WebcastingLibrarian Sets New Rates for Audio on the Web." Library of Congress. N.p., July 2002. Web. 06 May 2015. <http://www.loc.gov/loc/lcib/02078/royalties.html>.

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