What the Music Modernization Act Missed, and Why Taylor Swift Has the Answer: Payments in Streaming Companies' Stock should be Dispersed Among all the Artists at the Label.

• Author: Huffman, Anna S.

1. INTRODUCTION: THE DIGITIZATION OF THE MUSIC INDUSTRY 538 II. BACKGROUND: DIFFERENCES IN STREAMING SERVICES AND THEIR 539 BUSINESS MODELS, AND THE MMA EXPLAINED A. Congress's Attempts to Update Copyright Laws in Music's 539 Digital Age While Copyright Owners are Historically Under-Compensated B. Differences Between Interactive and Non-Interactive 539 Streaming Services C. Licensing Models for Interactive and Non-Interactive 540 Streaming Services D. The Difference in Business Models Between Non-Interactive 541 Services Like Pandora and Interactive Streaming Services Like Spotify 1. Pandora's Business Model 541 2. Spotify as a Streaming Service 542 3. Spotify's Business Model 542 E. The MMA: Congress's Attempt to Strengthen Copyright Law 543 and Make Music Streaming Profitable F. Taylor Swift's Contract with Universal Music Group 546 Indicates Copyright Owners are Beginning to Negotiate Streaming Revenues with Record Labels III. ANALYSIS 546 A. The Inconsistences of the MMA 546 1. MMA Legislation Could Be Interpreted to Offer 547 "Full-Works" Licensing Only Because of Congress's Attitude Toward Consent Decrees B. Policy Issues Regarding the MMA 548 C. Spotify's Relationship with Copyright Law 548 D. Wixen v. Spotify Addresses Spotify's "Infringe Now, Pay 550 Later" Model, and Spotify Settles with Copyright Owners Out of Court E. Spotify Incentivizes Record Labels to Accept Lower 551 Royalty Payments in Exchange for Equity in Spotify F. The Record Label's Role in the Digital Era as a Powerful 552 Middleman between the Copyright Owner and Streaming Company IV. RECOMMENDATION 552 A. Spotify's "Infringe Now, Pay Later" Business Model 552 Indicates the MMA was a Much-Needed Update to Copyright Law B. Legislation Is a Step Toward Updating Musical Licensing 553 Laws, but Will Not Fix or Regulate Major Problems Between Streaming Companies, Artists, and Labels C. Record Labels Should Contract with Their Artists for Fair 553 Compensation D. Contract Law Is a More Efficient Legal Tool for 554 Compensation Issues in the Digital Music Era E. Artists and Labels Should Negotiate Equity Interests in 554 Streaming Companies Before the Artist Signs with the Label F. Taylor Swift's Deal with Universal Music Group and Equity 555 Sharing Should Serve as an Industry Standard in Music's Digital Age V. CONCLUSION 556 I. INTRODUCTION: THE DIGITIZATION OF THE MUSIC INDUSTRY

   The music business is an evolving industry, given the vast technological changes constantly altering the way music is consumed. copyright law governs the music industry, giving artists, including musical artists, property rights in the work they create. (1) In 1909, Congress enacted mechanical copyright laws to protect copyright owners' published work. (2) Nearly 80 years later, music is now consumed digitally. (3)

   This Note will explore the issues encompassing music's digital era, specifically the tension between streaming companies desiring vast catalogues at little expense, and songwriters and music publishers who should be paid fairly for the work they create. This Note will analyze the likely effects of the Music Modernization Act (MMA) for copyright owners and streaming companies. Then, this Note recommends record labels and artists find contractual solutions to ensure artists are being paid adequately for their work. This is significant because the MMA does not address the issues with streaming services giving company equity to record labels, so the streaming services can pay less in royalty rates to labels.

   Part II discusses the legal and business differences between non-interactive and interactive streaming services. This Part also explores the history of, purpose of, and changes brought by the MMA. Part III analyzes current copyright law and additional licensing laws Congress created with the MMA, Spotify's substitution of equity for royalties with record labels, and the role the record label has between a streaming company and copyright owner. Part IV argues legislation will not fix all of the music industry's issues with digital music streaming. This Note concludes by recommending a new industry standard: revenue-driving copyright owners and record labels should contract, so royalty revenues from revenue-driving artists are dispersed to the remaining artists at the label. (4)

2. BACKGROUND: DIFFERENCES IN STREAMING SERVICES AND THEIR BUSINESS MODELS, AND THE MMA EXPLAINED

   1. Congress's Attempts to Update Copyright Laws in Music's Digital Age While Copyright Owners are Historically Under-Compensated

      Copyright laws have not kept up with the digitalization of the music industry, in which music listeners turn to streaming platforms like Spotify, Apple Music, Pandora, and YouTube to consume music rather than buying albums, tapes, records, or individual songs. (5) Unfortunately, some streaming companies ignore copyright law by failing to obtain mechanical licenses for musical works. However, Congress recognized the infringement models some streaming companies were operating under and proposed the MMA, creating a blanket licensing system, a copyright royalty board, and a collective body to amass mechanical royalties from streaming companies on behalf of musical publishers and songwriters. (6) The MMA was supported widely by the music industry, including both music publishers and songwriters themselves. (7)

      Previously, Congress tried to modernize copyright laws to reflect the movement from analogue music to digital music consumption through the Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998. (8) The legislation created a public performance royalty for musical works and sound recordings transmitted digitally, in addition to the mechanical royalty which Congress previously created. (9)

   2. Differences Between Interactive and Non-Interactive Streaming Services

      Streaming companies subscribe to either an interactive or non-interactive business model. (10) The distinction between a non-interactive and interactive streaming service is based on the licensing requirements the company must comply with as-per copyright law. (11) The Copyright Act defines an interactive service as a service which allows a user to play a program specifically generated for the user or allows a user to listen to a sound recording chosen "on behalf' of the user. (12) Streaming companies like Spotify (13) and Apple Music are interactive streaming platforms because subscribers and casual users to the platforms have access to and control of content they can seemingly play instantly. (14)

      A streaming platform is not an interactive streaming service if the requested sound recording does not play within an hour of the request or at a time stipulated by the streaming platform or user. (15) Non-interactive streaming services, like Pandora, (16) provide users a music-consumption experience similar to radio recordings. (17)

   3. Licensing Models for Interactive and Non-Interactive Streaming Services

      Non-interactive and interactive streaming services provide different music consumption methods to users and subscribers, which result in different licensing schemes streaming companies follow to abide by the appropriate copyright law.

      A non-interactive streaming service--Pandora for example--is required to obtain a public performance license for the sound recordings and musical works it plays for subscribers. (18) The public performance copyright allows the license holder to "perform" (19) or play the music publicly, and the copyright owner is paid and credited for the copyrighted musical work or sound recording. (20)

      Pandora obtains public performance licenses because Pandora provides musical works on a public platform through a "digital audio transmission." (21) Pandora does not reproduce or dispense the musical works and sound recordings to its subscribers like an interactive streaming service would because Pandora users do not control which musical works and sound recordings they listen to. (22) Thus, non-interactive streaming services are required to obtain one license to abide by the Copyright Act lawfully: the public performance license.

      Interactive streaming companies--like Spotify and Apple Music--also obtain public performance licenses for musical works and sound recordings because interactive streaming services transmit works publicly through a digital platform. (23) However, interactive streaming companies allow users to control what musical works and sound recordings they listen to and play, so the streaming service must obtain another license to lawfully reproduce the music disseminated amongst its users: the mechanical license. (24)

      An interactive streaming service is required to obtain both a public performance license and a mechanical license because copyright owners of musical works and sound recordings have a right to "exclusive distribution and reproduction rights [of the work]." (25) An interactive service reproduces and distributes the work--when the service allows users to select music to play imminently--thus needing to obtain both licenses.

      Unlike non-interactive streaming services, interactive streaming services cannot obtain public performance licenses through the same statutory scheme--17 U.S.C.A. [section] 114--because an interactive service must negotiate with the copyright owner or a sound recording performance rights association. (26) A copyright owner of a musical work or sound recording has the exclusive right to distribute and copy their work. (27) A mechanical license allows a copyright owner to make money from other entities distributing and copying the sound recording. (28) Interactive streaming services are required to negotiate with the copyright owners to distribute and copy the musical works or sound recordings (i.e. the mechanical license), so the streaming company can lawfully provide this music to users and subscribers at their request. (29) Thus, interactive streaming services have to negotiate...