SoundExchange v. Muzak

On the Internet there is no shortage of stories about how little artists make off their music. Many notable Grammy winning artists make pennies per year for prominently played songs. Iggy Pop recently lamented, “If I had to depend on what I actually get from sales I’d be tending bars between sets. I mean honestly it’s become a patronage system.”

Music licensing and royalties are complex. Few people understand them. But in what almost reads like an April Fool’s parody, on April 1, 2015, the lawsuit SoundExchange v. Muzak shed a little light on why we are where we are.

First lets look at who is who in this case. From the Complaint:

1.  Defendant Muzak, LLC (“Muzak”) is the provider of one of the earliest digital music offerings in the United States – the “DishCD” offering provided to consumers as part of Dish satellite television packages. As such, Muzak was one of the first users of the Copyright Act’s “statutory license” to make digital transmissions of sound recordings. When Congress significantly revised that statutory license in 1998, it granted Muzak the special privilege of using copyrighted sound recordings at “preexisting subscription service” royalty rates that had been set below fair market value.

8. … SoundExchange is the sole entity in the United States designated by the Copyright Royalty Judges to collect digital performance royalties from statutory license users and to distribute those royalties to performing artists and copyright owners. Specifically, SoundExchange is charged by statute and regulation with administering the statutory license….

The parties defined, one thing stands out – Muzak and SoundExchange have a special place in the hearts of their Congressmen. How much better can it get than to have custom laws just for you?

Then there are the details of the dispute (abridged):

11.  As an alternative to having every music service negotiate separate licenses with every copyright owner, Congress has granted various eligible entities the ability to obtain a “statutory license,” 17 U.S.C. §§ 112(e), 114(d)(2), … This license allows eligible entities … to reproduce and publicly perform all commercial sound recordings without fear of copyright infringement.

14.  In October 1998, Congress passed the Digital Millennium Copyright Act…Among other things, the DMCA put in place a new royalty rate standard … digital audio transmissions must be set to reflect those that “would have been negotiated in the marketplace between a willing buyer and a willing seller.” …

15.  The DMCA created an exception, however, for … “preexisting” subscription services (“PSS”) that were in operation prior to the DMCA’s passage…[such as Muzak].

16.  PSS are not subject to the willing buyer/willing seller standard codified in § 114(f)(2)(B)….

19.  Congress’s purpose in grandfathering the PSS under the pre-DMCA statutory license provisions – including the pre-DMCA standard for setting royalty rates – was “to prevent disruption of the existing operations by such services.”…

To sum this up, SoundExchange has a sweetheart deal where everyone must pay them for music that gets played. Artists generally can’t negotiate what they want, but are subject to a “statutory license” rate set by the government.  Certain PSS’s (like Muzak) get a special side deal that instead of paying the rate of a “willing buyer/willing seller,” (decided by the government… not the artists) they pay an even lower rate.

At this point you can probably guess that the dispute is about SoundExchange wanting more money from Muzak. But I think there are bigger problems revealed in this case, such as:

  • Why artists can’t be the ones that decide what the rate should be for their music;
  • Why a government is deciding what a “willing buyer/willing seller,” would agree on; and
  • Why anyone should get to pay a rate for anything that is below the “willing buyer/willing seller” standard…. ever.

No matter who wins this one, it is clear the artists have lost.

The case and full Complaint is: SoundExchange v. Muzak, 15-cv-00476-RCL, (April 1, 2015, D.C.D.C.).

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