Addressing the Value Gap in the Age of Digital Music Streaming.

• Author: Lawrence, Daniel L.

TABLE OF CONTENTS I. INTRODUCTION 512 II. THE VALUE GAP 518 A. The Value Gap in the United States 518 B. The Value Gap in Europe 522 C. The Value Gap in Asia: Focus on China 524 III. RELEVANT INTERNATIONAL INTELLECTUAL PROPERTY INSTRUMENTS 526 IV. US MUSIC-LICENSING FRAMEWORK 527 A. Musical Works Licensing 528 B. Sound-Recordings Licensing 531 C. Discount Licenses 532 V. POSSIBLE SOLUTIONS 533 A. Judicial Action 533 B. Opt-Out Provision for Licensing Musical Works. 535 C. Expansion of Compulsory Licensing to Digital 536 Interactive Streaming Services VI. SOLUTION 538 A. Revision of Article 8 of the WIPO Copyright Treaty 538 B. Legislative Changes to the Music-Licensing Framework 540 VII. CONCLUSION 542 I. INTRODUCTION

"Dear Congress: The Digital Millennium Copyright Act is broken and no longer works for creators." (1) This is the opening of a June 2016 petition to reform the Digital Millennium Copyright Act (DMCA). (2) Over 170 artists, including music superstars such as Sir Paul McCartney, Taylor Swift, Kings of Leon, and Jack White, signed the petition asserting that the DMCA is outdated and in dire need of legislative reform. (3) Other signers of the petition included legacy artists such as Billy Joel, Sting, U2, and individual members of the Eagles. (4) In an infamous June 13, 2016 interview with Billboard Magazine, Trent Reznor of the band Nine Inch Nails expressed frustration with the DMCA by calling out YouTube, claiming that the video sharing platform was "built on the backs of free, stolen content." (5)

The DMCA was enacted on October 28, 1998. (6) Title II of the Act limits copyright-infringement liability of online service providers that offer statutorily prescribed services. (7) More specifically, the DMCA added [section] 512 to the U.S. Copyright Act (Copyright Act), which implements liability-shielding safe harbors for online service providers that store information posted by users. (8) Although the DMCA was originally enacted in 1998, it has caused recent uproar among musicians, songwriters, and other music copyright holders. (9) What explains this sudden outcry? The petition to amend the DMCA explains that the "law was written and passed in an era that is technologically out-of-date compared to the era in which we live." (10) The petition goes on to explain that "[t]he tech companies who benefit from the DMCA today were not the intended protectorate when it was signed into law nearly two decades ago." (11) Those opposed to the law contend that technology titans such as Google and its subsidiary, YouTube, are exploiting the DMCA's safe harbor provisions to establish unfair negotiating leverage in music-licensing deals. (12) This leverage allows streaming services that qualify for safe harbor protection to generate immense profits at the expense of content creators and other copyright owners. (13)

The safe harbor provisions in the DMCA and similar laws in various countries around the world have had a detrimental impact on the global music industry. (14) Due to the global rise in digital music streaming, issues surrounding the remuneration of artists are not confined to US borders. (15) According to the International Federation for the Phonographic Industry's (IFPI) 2017 Global Music Report (2017 Global Music Report), digital music streaming is "the most prevalent and significant format in the modern music industry." (16) In short, the shift to music streaming has made adequate remuneration a primary concern for industry stakeholders, including songwriters, musicians, publishing companies, and record labels. (17)

The remuneration problem is often referred to as the value gap. (18) The IFPI's 2018 Global Music Report (2018 Global Music Report) explains that the value gap "describes the growing mismatch between the value that user upload services, such as YouTube, extract from music and the revenue returned to the music community--those who are creating and investing in music." (19) The 2017 Global Music Report considers the value gap to be "the biggest threat to the future sustainability of the music industry." (20) The value gap poses such a large threat because without adequate compensation, songwriters and musicians are discouraged from investing in the creation of new music. (21) Further, the value gap dissuades record companies from investing in the development of new artists. (22) The creation of new music and the development of new artists are essential to the long-term sustainability of the music industry. Ultimately, the safe harbor provisions in laws like the DMCA place the future success of the global music industry in jeopardy. (23)

The rapid expansion of the value gap can be largely attributed to the popularity of music streaming on YouTube and similar user upload services. (24) The widespread popularity of streaming is exemplified by hip hop artist Chance the Rapper's 2016 album, Coloring Book, which could not be purchased in stores and was only available through various streaming services. (25) Despite this unconventional release, the album earned Chance the Rapper three Grammy awards--an achievement symbolizing the new norm for music consumption. (26)

Some of the major players in the streaming-services industry include Spotify, Apple Music, Tidal, iHeartRadio, Amazon, and Deezer. (27) Each of these companies offers a similar service, charges a similar subscription fee, and provides access to virtually the same catalog of music. (28) In contrast to subscription-based models, pure ad-supported platforms like YouTube generate all revenue through advertisements. (29) Notably, the IFPFs 2018 Music Consumer Insight Report reveals that 47 percent of time spent listening to on-demand music is on YouTube. (30)

In addition to YouTube's pure ad-supported platform, the company introduced a subscription-based platform called YouTube Music Premium on May 17, 2018. (31) Like other subscription-based services such as Spotify and Apple Music, YouTube Music Premium allows users to pay a subscription fee to avoid having to listen to advertisements. (32)

On January 23, 2018, YouTube implemented Official Artist Channels. (33) These channels are designed to make it easier for listeners to find music by their favorite bands and artists in one consolidated location. (34) The change is specifically tailored for users who "treat YouTube like a jukebox." (35) Of course, this is troubling for artists and musicians concerned with the value gap because it makes it even easier for consumers to operate YouTube like a free digital interactive streaming service. (36)

One final aspect of YouTube's model relevant to the value gap analysis is its video recommendation system. (37) As the name suggests, the system's goal is to "provide personalized high quality video recommendations to its users." (38) The system first uses data-mining techniques to identify "a set of related videos that a user is likely to watch after viewing a seed video." (39) Once the system identifies the set of related videos, or "recommendation candidates," it ranks them based on video quality, the user's unique preferences, and diversification (a method that offers a variety of videos based on a user's range of viewing interests). (40) In January 2018, YouTube's Chief Product Officer Neal Mohan revealed that the company's recommendation system drives more than 70 percent of the overall viewing hours on the site. (41) This statistic demonstrates the powerful influence YouTube's video recommendation system has on its users. (42)

Despite the fact that music streaming is largely responsible for the emergence of the value gap, it nonetheless has some positive attributes. For instance, streaming has allowed music to break geographic borders by opening up music markets in regions that did not previously have them. (43) The Recording Industry Association of America's (RIAA) 2017 midyear report expressed optimism about the future of streaming, pointing to the fact that streaming made up 62 percent of total US music-industry revenues. (44) According to an earlier RIAA report, this uptick in US revenue from streaming represented a 29 percent increase from the revenue generated in 2015. (45) In addition, streaming revenues have increased in many other regions, including Europe, Asia, and Latin America. (46)

Despite the increasing profitability of streaming overall, some streaming services pay smaller licensing fees than others. (47) In the RIAA's 2017 midyear report, former Chairman and CEO Cary Sherman pointed out that "not all streaming services are equal." (48) Sherman explained that "[t]o the fan, there is often little difference between the multitudes of services available, yet the payouts to creators are very different and vastly impacted by outdated or abused laws and regulations." (49) While subscription-based services like Spotify legally license music, other ad-supported streaming services such as YouTube argue that they are not required to obtain a license to host user uploaded content. (50) According to the 2018 Global Music Report, Spotify paid record companies an estimated $20 per user, while YouTube paid less than $1 per user in 2017. (51) The British Phonographic Industry (BPI) also reported that in 2015, the revenue generated from pure ad-supported platforms (the category that includes YouTube) represented 4 percent of total recording-industry revenues--an amount less than the revenue generated by vinyl sales during that year. (52) According to an RIAA study, a person would have to watch fifty-eight hours of music videos on YouTube before the content creator would receive a single dollar of revenue. (53) Despite pressure from the RIAA, the BPI, the IFPI, and other global music-industry forces, platforms like YouTube continue to shield themselves from copyright liability by hiding behind safe harbor provisions originally enacted to protect relatively small start-up companies operating as passive intermediaries for their...