THE REAL SLIM SHADY: HOW SPOTIFY AND OTHER MUSIC STREAMING SERVICES ARE TAKING ADVANTAGE OF THE LOOPHOLES WITHIN THE MUSIC MODERNIZATION ACT.

• Date: 01 January 2021
• Author: Dahrooge, Jillian J.

1. Introduction

   The popularity of MTV in the 1980s is equivalent to the modern esteem of music streaming services. (1) Music streaming services have become the biggest discovery platform for artists due to their role as the primary medium of music consumption. (2) The Recording Industry Association of America ("RIAA") submitted an annual report in 2019 stating that streaming generates 75 percent of the music industry's revenue due to generational change and the newfound popularity in music streaming applications. (3) This spike in popularity has led to an increase in streaming companies such as Spotify, Apple Music, Tidal, Pandora, and Amazon Music gaining household recognition. (4) There are non-interactive services, such as Pandora or internet radio stations, that do not allow users to choose the exact song they want to hear; while interactive, on-demand services give users full control of what they listen to. (5) Spotify is the clear frontrunner for on-demand services, with 87 million paid subscribers and 191 million monthly users as of November 1, 2018. (6) Unfortunately, the sudden spike in popularity coupled with the newness of music streaming services created an unorganized and unregulated system dictating how artists and producers collect royalty payments from these companies. (7)

   Music streaming services have left the music industry at a crossroads, where more music is at the consumer's fingertips, but less money is earned by artists and producers. (8) Although Spotify is the most popular service, it is ranked as having one of the worst payouts. (9) The royalty payout issue amongst the streaming world is complex because songwriters need to be paid more, while streaming services need to increase their profit margin. (10) Congress responded to advocate's complaints on October 11, 2018 by signing into law the Orrin G. Hatch-Bob Goodlatte Music Modernization Act ("MMA"). (11) The MMA is one of the most significant reforms to the music license industry since the Copyright Act of 1976. (12) The MMA attempts to fix growing pains inflicted by the application of an arguably obsolete framework, designed for more traditional means of music consumption, to digital streaming. (13)

   The MMA appeared to be the necessary solution to fix the royalty payout problems within the music streaming industry. (14) Nevertheless, the MMA contains loopholes which Spotify and other music streaming services are taking advantage of, thus the Act fails to cease royalty-based lawsuits. (15) Additionally, music streaming services continued to neglect the proper protocols in obtaining licenses and permissions from copyright owners. (16) In August 2019, Eminem's publishing company, Eight Mile Style, sued Spotify for taking advantage of the loopholes in the MMA, specifically misleading copyright holders and paying them less than what they are owed. (17) The case, Eight Mile Style v. Spotify, (18) resultantly further sheds light on the issues that the MMA poses. (19) Succinctly, the MMA needs to be reconsidered and amended by Congress to benefit not only the big companies, but also the artists and producers who are the reason for the success of music streaming services. (20)

2. History

   1. The History of Copyright Law in the United States

      For centuries, the printing press was the most viable means for mass producing copies of a work, and a physical copy was necessary to view an author's product. (21) For example, music was distributed in the form of sheet music where purchasers would follow the notes on the sheet with their own instruments. (22) At the start of the twentieth century, music distribution changed and the first methods of playing sound recordings at home were created. (23) By the mid-twentieth century nearly every household had a radio and television set, equipped with audiotape equipment capable of recording music as well as playing pre-recorded tapes. (24) Audio streaming through digital technology started in the 1970s, as personal computer systems were soon followed by pre-recorded compact discs, digital audio recording media, digital multimedia technology, and the ability to digitally transmit audio files. (25) Consequently, any individual with access to the internet was able to display these recordings for their personal use, thus propelling the need for copyright law to govern these changes. (26)

      The United States copyright law is codified in Title 17 of the United States Code, with its authority deriving from Article I, Section 8 of the Constitution. (27) Historically, this provision of the Constitution was known as the Patent and Copyright Clause because the term "intellectual property" did not exist until the twentieth century. (28) The first Copyright Act was enacted in 1790, providing copyright protection to authors of maps, charts, and books. (29) over the next few centuries, the Act was amended multiple times to encompass the ever-changing methods of producing creative works. (30)

      The Copyright Act of 1976 was one of the most significant revisions to United States copyright law. (31) in addition to the development of new creative expressions, technological advancements transformed the ways in which creative works were produced, distributed, and accessed by the public, resulting in the need for a new federal copyright law. (32) The Copyright Act of 1976 completely preempted all versions of copyright law in the United States and became effective on January 1, 1978. (33) The Act provides statutory control over original works "that are fixed in a tangible medium of expression." (34) Overall, the 1976 Act expanded the subject matter for copyrights, the duration of copyright ownership, the scope of an author's rights, the copyright registration requirements, and added remedies for infringement. (35)

   2. Copyright in Music and Royalty Payment Practices

      The music industry had difficulty adapting to the digital era because multiple copyrights are needed for one song. (36) A "song" is considered two components, the composition (i.e. the notes and lyrics) and the sound recording. (37) The musical composition and sound recording are distinct works that require separate copyright registrations. (38) Protection for the ownership of a song can require contracts with multiple players in the music industry, but customarily, a contract is set up between a songwriter and music publisher. (39) A music publisher acts as the middleman between the songwriter and other music professionals; coordinating the purchase of a license in the songwriter's compositions. (40) A record company, the entity creating sound recordings, is another middleman for artists. (41) The record company works with the artist to produce, distribute, and promote the artist's song through sales of physical copies or creating licenses to stream the sound recording. (42)

      In order for radio stations or internet streaming services to play an artist's music they need permission from the people who own a copyright in the song. (43) The publisher or record company are assigned the copyright of a sound recording in exchange for a percentage of various royalties and licenses. (44) For physical products, such as a CD, royalties are paid directly to the copyright holders for every copy sold. (45) The sale of a CD poses limited issue because the copyright owners are easily determinable in the album's liner note. (46) Contrarily, royalty payments are complicated when it comes to digital music streaming. (47)

      1. Streaming is More Beneficial to Companies like Spotify

         Technology has visibly changed the music economy as evidenced through on-demand streaming becoming the most widely used music platform, foregoing CD sales. (48) However, the transition to on-demand streaming complicated the process in which music professionals were able to gain royalties for their work. (49) Music streaming may be a convenient technological advancement for consumers, but it harms the earning capacity of music professionals. (50) On average, Spotify pays $0.00437 per average play, meaning that an artist will need roughly 336,842 total plays to earn $1,472. (51) While in comparison, Spotify has an annual revenue of $4.99 billion through its paid subscribers. (52) As seen from this significant difference in revenue, Spotify is profiting off of music streaming significantly more than artists. (53)

      2. The Issue with Music Licensing

         In order to make a song available for streaming, a streaming company only needs a mechanical license. (54) Traditionally, a streaming company contracted with the individual record company to obtain a mechanical license. (55) The Copyright Royalty Board requires every song in a streaming service catalogue to be licensed, or the company, like Spotify, is liable for infringement. (56) Nonetheless, during the race to industry domination, Spotify and other companies, streamed a majority of their content without obtaining mechanical licenses. (57) The sudden rise in the popularity of music streaming, and the drive for companies to have a diverse digital catalogue, made it impossible for individuals to know if streaming services went through the proper avenues to obtain mechanical licenses. (58) This resulted in streaming services robbing artists of their royalties without facing any repercussions for their illegal actions. (59) At this time, the copyright law in the United States failed to address the myriad of licensing issues involved with on-demand music streaming. (60)

   3. The Enactment of the Music Modernization Act

      With copyright laws not addressing these licensing issues, artists and publishers were not receiving royalty payments and streaming services had no need to comply with the licensing process. (61) As a response, Congress unanimously passed the MMA on october 11, 2018 as a hopeful means to resolve the royalty and licensing conflicts. (62) The MMA is the most significant adjustment to United States copyright law because it reflects the modern preferences and...