Apple’s entry earlier this week into the crowded streaming music market thrusts the company into a years-long debate roiling the music industry. With an increasing number of consumers streaming their music online, how much money should tech companies pocket and how much should go to music makers?
Those questions could be answered by Washington.
On Capitol Hill, lawmakers have re-introduced a pair of bills to increase royalties for performers and composers. Meanwhile, the Justice Department is reviewing a longstanding antitrust agreement that, if changed, could allow music license holders to charge Internet services more money than others that play their music.
Both could significantly cut into the industry’s bottom line – and for some streaming services, even threaten their existence.
As a result, big names like Pandora and Spotify are girding for the fight. During the first three months of 2015, Pandora added two new lobby shops to its roster, Forbes-Tate and Wilmer Cutler Pickering Hale and Dorr, paying each firm $40,000 to lobby on issues related to music licensing, copyright and royalty payments.
Furthermore, the music streaming company spent another $390,000 on both external and internal lobbyists during the quarter on issues that range from patent reform to radio station ownership. In the first quarter of 2014, by comparison, Pandora spent just $80,000. Filings for the second quarter are due this month.
“With so much happening around copyright reform and music licensing, we decided that the addition of seasoned and highly-regarded firms was prudent,” said Dave Grimaldi, who Pandora hired as director of public affairs last year.
Meanwhile, Spotify hired its first lobbyists ever during the first quarter of the year, spending a total of $50,000 for services of The Gibson Group, Peck Madigan Jones, Forbes-Tate and Baker & Hostetler. Their cause? “Issues related to ongoing licensing, copyright, intellectual property and related issues in the music and technology industries.”
A lobbyist for Spotify deferred questions to the company, which didn’t respond to requests for comment. A representative for Apple declined to comment.
Even before Apple released its much-anticipated streaming music service on Tuesday, the Silicon Valley behemoth endured scrutiny for how it will compensate artists and composers. Most notably, the company reversed its plan to not pay royalties during Apple Music’s trial period after pop debutante Taylor Swift publicly decried the idea.
The fight between Internet-based music companies and their rivals has been brewing a long time. The streaming services contend that they’re already shelling out more in royalty payments than their competitors, including traditional radio stations.
“With regard to copyright policy, Congress has displayed a clear bias towards online music services and newer technologies,” said Greg Barnes, the general counsel and director of government affairs at the Digital Music Association, which represents those selling or streaming music online. “What we’re fighting for is equal treatment.”
Certain radio stations, like the kind you play in your car, currently pay royalties to music publishers, which represent the songwriter and composer. They pay nothing to individual artists. That means every time you hear Rihanna on the radio, the singer is not being paid for filling airtime. Artists and their record labels have long pushed for that to change and to force radio stations to pay to play their music.
Companies like Pandora and Spotify operate under different rules. They currently pay two sets of royalties, one to the artist and another to the publisher. These rates are established independently by separate governing bodies, resulting in a larger payment made to artists than publishers. The publishers are pushing for comparable royalties.
Reps. Jerrold Nadler (D-N.Y.) and Marsha Blackburn (R-Tenn.) in April introduced the Fair Play Fair Pay Act, which essentially treats streaming and other music services equally. The bill would require streaming services to pay royalties to the performers of songs recorded before 1972, which are not protected by existing copyright law. As written, the bill would strike a bigger blow to traditional radio stations by requiring them to start paying royalties to recording artists.
“Artists, musicians, producers and radio services alike deserve better. The Fair Play Fair Pay Act fixes this broken and unjust system by making sure all radio services play by the same rules, and all artists are fairly compensated,” Nadler said in April.
Meanwhile, Rep. Doug Collins (R-Ga.) re-introduced the Songwriter Equity Act, which, among other provisions, could increase how much money composers are paid when their songs are downloaded from services like iTunes.
Whether those bills will ever see committee markup, let alone passage, remains to be seen. Many say House Judiciary Committee Chairman Bob Goodlatte (R-Va.) is likely to push for more comprehensive copyright reform that targets all kinds of industries, not just the music business.
Nonetheless, the increased lobbying on the issue shows the streaming music industry fears the issue will not lay dormant in Congress for long.
Of more immediate concern for the industry is what the Justice Department will conclude following an antitrust review. Justice could decide to give music license holders the ability to negotiate royalty payments with online streaming services distinct from the royalties paid by other businesses that publicly play music, such as TV channels, bowling alleys and bars. If that happens, industry players contend, the price of playing music could become untenable.
Currently, companies that play music pay a standard rate that is negotiated through third-party performing rights’ organizations, most notably the American Society of Composers, Authors and Publishers and Broadcast Music Inc. Rate disputes are settled in a specialty court.
“For any of the [streaming music] companies, the change is going to pose an existential threat,” said Paul Fakler, an Arent Fox partner and lobbyist working on behalf of streaming service Music Choice. “Many of these companies are operating at losses or such tiny margins . . . if the royalty rates go up substantially, it’s lights out.”
Music Choice spent $30,000 during the first quarter on Arent Fox lobbyists – an amount equal to what the company spent all of last year – to focus primarily on issues related to music licensing and royalties, disclosure documents show.