Anyone who follows the ongoing disagreements between Pandora and the publishers rights organizations (PROs, including the two giants, the American Society of Composers and Broadcast Music Inc.) is left to wonder what to make of the announcement that Pandora now has acquired a traditional radio broadcasting station, and what impact it has on the company’s plans to seek a new copyright arrangement with PROs.

The sad fact is, unless you’re a lawyer specializing in copyright (and, in particular, in music copyrights), the more you study the issue, the more complicated it looks. This is particularly ironic, because so much of music-copyright reform over the last century—both in Congress and in the courts—has aimed to make copyright licensing simpler and more consistent, with an eye both to protecting rights-holders’ interests and to encouraging lawful, innovative uses as our technologies advance.

There’s a lot of history to know. The first federal Copyright Act was passed in 1790, not long after the writing of the U.S. Constitution itself. It lasted without major revision for more than a century. It took the Industrial Revolution – in particular, the invention of piano rolls – to inspire the first major revision, the Copyright Act of 1909.

Here you start to see the seeds of some important themes that have dominated copyright-policy discussions since 1909. The first is making sure creators and copyright holders get paid for at least some uses of their works. The 1909 Act extended copyright protection to piano rolls and similar technological advances, which had undermined the market for sheet music. It also created the first compulsory mechanical license, which enabled others to use a rights-holder’s musical composition (provided certain other conditions are met) without first needing to secure permission.

There were some disputes early on about the scope of protection for a “public performance” of a copyrighted work. ASCAP began as a nonprofit organization seeking to obtain payments from restaurants and other public venues where piano-roll music was played. This strategy was vindicated by the U.S. Supreme Court in 1917’s Herbert v. Shanley. As radio became a popular entertainment medium, ASCAP expanded its strategy to cover broadcast recordings of musical works, leading both to new revenue streams and to the founding of its major competitor in the United States, BMI.

ASCAP and BMI both had a lot of clout in their early years and both PROs eventually felt compelled to participate in consent decrees administered by the U.S. Justice Department. Until relatively recently, music rights-holders and the PROs have been mostly happy with the consent decrees, which create a clear framework of royalty rights, but allow publishers to opt out if they think they can obtain more revenue in separate negotiations with companies that broadcast their content. The consent decrees for ASCAP and BMI date from 1941.

By 1976, many new forms of communication (radio, TV, movies, recordings) raised calls for expansion or clarification of copyright law. Congress felt compelled to revise the Copyright Act yet again — partly to expand the terms of copyright protection (to give more money and incentives to creators, it was argued) and partly to bring U.S. copyright law into greater alignment with the laws of other countries, particularly in Europe.

Registering your copyrighted work with the U.S. Copyright Office became less important after 1976 and even less so in light of still-later amendments to the Copyright Act. Copyrighted works now are understood to be protected from the moment you write them down or engage in any other “fixation” of your creation.

Perhaps the most contentious music-copyright issues of our era have centered on the development and growth of digital technologies and the Internet. As the Internet became more accessible to the public, and CD burners became standard equipment on personal computers, copyright holders became more and more concerned. Mixed cassette tapes and programmable videocassette recorders were bad enough, but digital reproduction of copyrighted works—in particular, music recordings, whose files were easy to compress—meant that unlicensed copies could (and likely would) undercut traditional sales of recorded music to consumers.

The Digital Performance Right in Sound Recordings Act of 1995 created a brand new, wholly separate copyright interest in “transmission” via new digital distribution media. In their specific expansions of copyright protection, the WIPO Treaties of 1996 and the Digital Millennium Copyright Act (DMCA) of 1998 similarly reflected rights-holder anxieties about digital tech and the Internet. Terrestrial broadcasters like traditional radio and other pre-webcasting services like cable and satellite are grandfathered in to these regimes at comparatively low rates, with traditional broadcasters getting the best deal. (Broadcasters don’t have to pay for rights to redistribute sound recordings; they just have to pay the PROs for the right to use the compositions.)

Webcasters – the category into which Pandora has been classed, at least until recently – have had the least leverage and what generally are regarded as the highest rates for both sets of rights.

There are two results of these last developments:

  1. If you want to provide a music service that distributes copyrighted music to a mass audience, you need to get both rights to “perform” the compositions and rights to distribute/stream/transmit the sound recordings. More often than not, these rights belong to two separate individuals or entities.
  2. The rates you have to pay to do this – especially, but not only, if you negotiate with PROs – will vary according to the kind of service you provide. Sometimes, they’ll vary a lot.

All of this brings us back to where we started: Pandora has bought a radio station. Its motivation almost certainly includes wanting to qualify for the licensing rates on which terrestrial broadcasters rely. ASCAP was sufficiently worried about this strategy that it vigorously fought the acquisition for two years in proceedings at the Federal Communications Commission.

Now that Pandora has finally won, ASCAP’s new view is that Pandora’s status as a broadcaster in one market shouldn’t matter. Buying the radio station, the PRO now says, shouldn’t enable Pandora to take advantage of the broadcast licensing framework in the context of offering an Internet-wide music service.

At this point, scanning how complicated the music-copyright landscape is, one no doubt might wonder if there’s some alternative to wipe away the hodgepodge of byzantine copyright statutes and court-administered consent decrees and, you know, just let the market work. The difficulty with copyright law is that the copyright market has been a creature of statute and court decisions since the founding the American Republic. There’s no pre-existing “free market” to get back to.

That hasn’t prevented ASCAP, other PROs and music publishers from arguing that there’s a way to get closer to a free market in music copyright. For instance, publishers could engage in a “partial withdrawal” of copyrighted works from the PRO agreements. That is, allow them to withdraw only the digital rights, but the PROs would continue to administer blanket-licensing agreements at set rates for traditional radio, cable and satellite markets. That way, they say, we can at least find out what a free market in digital copyrighted works might look like.

To which Pandora and other digital platform providers respond (with unsurprising agitation): why penalize a new platform trying to offer music to audiences in a way that’s mostly like over-the-air radio, except that it allows listeners more ways to learn about new music they may love?

Who’s right? Right now the “rate courts” (what a federal court gets to call itself when deciding a question under the consent decrees) agree on some matters (no partial withdrawal) and disagree on others (digital rates are going to be higher – sorry, Pandora).

At this point, it remains unclear what effect Pandora’s new status as a traditional broadcaster will have. Plus, I’ve been oversimplifying even in this already lengthy entry. I haven’t even mentioned the role that the Copyright Royalty Board, a part of the Copyright Office, which is part of the Library of Congress, may play in rate-setting.

All we know for certain are two things:

  1.  In the near term, the federal rate courts will revisit the issue of whether Pandora deserves different rates from the PROs, and the Justice Department is revisiting the question of whether the consent decrees really need to prohibit publishers from “partial withdrawal” of their digital rights, rather than the all-or-nothing choice the rate courts have thus far mandated.
  2. There’s no path forward that leads to what any economist would truly call a free market. The available choices –the only ones being actively pursued – are among somewhat differing, highly regulated music-licensing ecosystems. Where the balances are struck will depend on which of these frameworks lawmakers, policymakers and judges believe will best manifest the goals of the Constitution’s Copyright Clause.

Featured Publications