Specific Problems with the Section 115 Licensing Process

Rate Structure

One of the most pressing questions regards the rate structure: should it be based on each record sold or on some other metric such as a percentage of the music provider’s revenue? Many record labels (see RIAA "Written Direct Testimony") and digital music providers (see "Introductory Memorandum") such as Napster, Apple and Yahoo! claim that rates should be based on a percentage of revenue—especially in a world where single track sales are outpacing the sales of full-length albums. Jonathan Potter, president of Digital Media Association (DiMA), a group that represents the interests of companies providing digital content, explains that the current penny rate is overly restrictive and does not account for changes in consumer offerings and prices. For instance, publishers see Dual Disc CDs (CD albums that contain CD audio on one side of the disc and DVD/multimedia content on the other side) as two separate copies of the album and thus, require two payments.

The Notice Requirement

Another complaint that digital media companies have regards the notice requirements of Section 115. Under these requirements, distributors have to physically mail notices of intent to each copyright owner. This requirement is outdated, the media companies argue, because nowadays, a digital storefront must offer at least one million songs in order to be competitive. Even though many songs may have the same copyright owner, digital music companies still have to physically mail an unreasonably high number of notices – a requirement that media companies claim is both wasteful and cumbersome.

Scope of the License

The third major problem with the Section 115 license relates to the scope of the license. Because of the nature of digital technology, a number of copies—known as incidental reproductions—are made in the course of the transmission of a song. For example, let’s say that you purchase a track from an online music service like iTunes. In order for iTunes to transmit that file to you, it might need to make incidental copies of that file—for purposes of caching or buffering. On the user side, incidental copies might also be made—for example, a file that is downloaded to your desktop and then “imported” (i.e. copied) into your music library, which lives elsewhere on your hard drive. While these incidental copies do not result in the customer receiving an additional, permanent copy of the music in question, some copyright owners claim that these files are still implicated under Section 115 and should be licensed just like any other piece of music.

The National Music Publishers Association claims that incidental reproductions made in the course of both on-demand streams (where the user is able to select songs and create playlists, unlike in traditional radio) and limited downloads (files that download to your hard drive that become unusable after a certain number of plays or after a certain amount of time has elapsed) should be licensed.

Music publishers claim that on-demand streams allow customers to choose the music they want, when they want it and additionally, allow those customers to record that music. For these reasons, they argue that on-demand streams constitute a distribution of music on the same order as a permanent download and thus, should be licensed like any other piece of music. In fact, the National Music Publishers Association, the Harry Fox Agency and the Recording Industry Association of America have already entered into an agreement to this effect.

But that’s not all. Performance rights societies i.e. ASCAP, BMI claim that on-demand streams also constitute a performance of the work in question and for this reason, charge a higher performance royalty for such streams. As a result, digital media companies end up paying two royalties for the same song—one to the performance rights societies and one to the National Music Publishers Association or the Harry Fox Agency. DiMA companies concede that while on-demand streams may warrant higher performance royalties, they should be exempt from the Section 115 license. Furthermore, they feel that incidental reproductions should be completely exempt from any license.

Ambiguity in Section 115 has certainly created a lot of room for confusion on all sides of the debate. Section 115 defines the standard unit of measurement for digital music sales—Digital Phonorecord Deliveries or DPDs—as a “specifically identifiable reproduction” of a piece of music, regardless of whether or not that reproduction also constitutes a public performance. This creates the possibility of interpreting a piece of music as both a DPD and a performance!