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We Know Compulsory Licensing Is "Broken" - Here Is How To Fix It

800-broken-record-shutterstock-sedmi-800x633[UPDATED] Spotify's recent alleged failure to pay songwriters their due royalties has served to further highlight the numerous flaws with the compulsory licensing system which is currently used by the music industry and the need for a direct licensing solution that can adequately serve all involved.


Guest Post by Keith Bernstein, Founder, Crunch Digital

A few days ago, news broke that Spotify was preparing an out-of-court settlement with several music publishers, coming in the wake of a number of lawsuits suits filed against some digital services over the non-payment of mechanical royalties. The plaintiffs in the lawsuits alledge that Spotify failed to pay royalties owed to songwriters; Spotify contests that it didn’t have the proper information to license and pay out those royalties because music metadata is woefully incomplete.

UnnamedCourt documents suggest that Spotify was working with the Harry Fox Agency to send out Notices of Intent (NOIs) under the current compulsory license system for the songs they use on their service. Spotify probably assumed that they were completely covered -- but it appears that they weren’t. Not only do the compulsory licenses not prevent a streaming service from being sued, violations can spell doom for companies -- if they are found to be operating outside of the license, that license can be voided and cannot be resubmitted.

If a service didn’t even send an NOI in the first place, then that’s a bigger problem.  It seems like a new lawsuit against a digital streaming service is being announced every day, and the core of these suits usually center around failing to have a license in place and not reporting.  Acting in accordance with the the regulations by filing an NOI for tracks with incomplete data with the Copyright Office is a cumbersome and sometimes costly process -- Spotify would have had to file paperwork and pay a fee for every single track it didn’t have the correct information on where sending an NOI to the the rights owner was not possible, which would have eaten up time and money.

The minutiae of a complicated compulsory license process is ultimately a symbol of a much bigger problem -- readily available information about recorded music and song ownership interests is a mess. Historically, labels focused much of their data housekeeping on albums, not tracks, which made sense when people mostly bought albums. With the shift to single track consumption, the data for all tracks in the marketplace has yet to catch up. Plenty of tracks and albums have been released through the years that simply never quite made it into databases of official records.

Copyright-symbolSeveral solutions have been proposed throughout the years, including the Global Rights Database (GRD), which ultimately fell apart. A few have suggested the blockchain is the best place to store data, but even they admit this solution is years away, and would require tremendous forward-thinking on the part of many in the industry. The concept is certainly interesting, but a solution is needed right now to protect the interests of both songwriters and the streaming services, who at the end of the day, do want to pay what they owe, but need help.

The best solution is a direct licensing service that connects digital music services with music publishers, which would allow streaming services to effectively and efficiently obtain the licenses they need and make sure they have all the data they need to report royalties -  this will help shield them from future problems. Such a licensing service would act as an administrator to the digital streaming service and as an agent to the music publishers and songwriters  - and be able to update song ownership information, essentially functioning as a back office to make sure everything was running smoothly. Currently, Crunch Digital has built a database of a majority of US music publishing copyrights that are in use among digital services and they keep their data fresh with updates coming from the music publishers they work with.  As an independent company that is not tied to a trade organization or a PRO, Crunch is in a position to provide a direct licensing solution for streaming services that will work for all parties involved.

No matter the solution, one thing is clear -- the current mechanical licensing system is fundamentally flawed and not serving anyone well. The process is complicated and can be costly -- and no one wins. Songwriters don’t get paid and streaming services open themselves up to potentially catastrophic liabilities. A direct licensing service would be a way to solve many of these problems and create a future where everyone can benefit.