Creators aren’t getting the financial respect they deserve in the digital domain. The problem is especially grievous when you consider that music and art are of significant value for our society and culture. If you agree, then read on…
It is not breaking news to recap the dire plight of intellectual property owners. Since the turn of the century (2000) we’ve watched a series of bandaids and patches try to unsuccessfully stem the royalty erosion brought about by the shift to digital technology. In just ten years the music industry has shrunk by over 50% (source: RIAA) as file sharing and other online issues rendered its analog business model obsolete. Artists, songwriters, record labels and publishers have all been adversely affected.
To be clear, some people have been actively trying to solve this dilemma. In the late 1990s the DMCA law wisely extended many of the analog rights into the digital world, but ultimately was (mis)used as a weapon for litigation against companies and consumers. Next content owners embraced Digital Rights Management (DRM), but it didn’t work either and made consumers angry. Additional legislation, such as the recently unsuccessful SOPA/PIPA proposal has been unable to convince a majority that it will solve the problems.
Perhaps the most positive development on the digital radar at present is offerings from companies such as Spotify, rdio, Rhapsody, Slacker and others. Consumers seem to like these new “access” models, but content owners have been quick to note how tiny the payouts are from these sources. In fact, the recent 2011 RIAA Year-End Shipment report shows that all the subscription companies added together have a minuscule adjusted base of about 1.8 million paying subscribers. Things are still getting worse for intellectual property owners, but perhaps the past can guide our future? Let’s review some copyright history.
The development of U.S. Copyright law actually dates back as far as 1783 when several authors tried to persuade the Continental Congress, “that the protection and security of literary property would greatly tend to encourage genius and to promote useful discoveries.” The Congress had no authority to act at that time, but the Copyright Act of 1790 created that power and gave authors a 14-year term with an additional 14-year renewal period.
In 1909 Congress decreed that a copyright holder owned the exclusive right to make a sound recording of a musical composition. It applied to piano rolls and phonograph records, disruptive new technologies which created the ability to mass distribute music. A statutory rate was set (mechanical royalty) and a compulsory license created so that after an owner extended a composition’s first mechanical license, anyone could then reproduce the song without permission as long as they, too, paid the royalty. A crisis was averted through legislation.
Fast forward to 1914 and the birth of ASCAP, founded by composers and publishers, many of whom were part of New York City’s Tin Pan Alley. Created to help protect and monetize the works of its members, ASCAP signed its first reciprocal rights agreement with Great Britain’s PRS (Performing Rights Society) in 1919. During the 1920s radio stations began to switch from featuring costly live entertainment to using musical recordings. Through the creation of a “blanket license” ASCAP began getting payments from broadcasters. According to ASCAP.com, “A annual Blanket license allows the music user to perform any or all of over 8.5 million songs in the ASCAP repertory as much or as little as they like.”
The mechanical, blanket, compulsory and performance licenses with a few tweaks, have served content owners well for almost 100 years with respect to balancing the rights of creators and the powers of technology in the analog world.
Perhaps the true brilliance in the system was marrying compensation, the blanket license ease of use and the evolving technology. While the piano roll, phonograph record and radio broadcast may seem harmless when measured by today’s digital yardstick, at the time they represented serious threats to the ability of creators to earn a living from their work.
Although the above historical narrative is brief, it’s clear Congress was recognizing the value of content creators when it created these various “rights,” and made the payments mandatory.
To be more specific, aren’t royalties actually a sales or value added tax? Consumers never paid the fees directly, but when purchasing a phonograph record the royalty costs were included in the price. Same thing for radio, the cost of the performance rights royalty was built into the ad rates broadcasters charged.
The semantic issue of royalty vs. taxation forms a welcome copyright precedent and may provide an answer for the digital future. Historically taxation is used to support social services by spreading the costs evenly among a large base of individuals.
The South Carolina Department of Revenue website contains an article titled, “Why Do We Pay Taxes,” which succinctly summarizes the issue.
“Why do we pay these taxes? There are many services offered to citizens that could not be managed effectively under any other system. Services provided by taxes in South Carolina are public schools, safe highways, health care, prisons and social services for low-income citizens…We can all admit that these services are necessary. But why must they be paid for with taxes? Why shouldn’t we just pay individually for what we use? The answer is simple: Because no one could afford it.”
Can The Past Plot Our Future?
Copyright owners could get the respect they deserve in the digital domain by updating the ideas which served them so well during the last big technology upheaval, a hundred years ago. The digital arena has a natural toll booth through which all visitors must pass, the ISP. There is no way onto the digital highway without an Internet Service Provider, making it the natural place to collect a copyright toll or royalty tax. For twelve years content owners have employed a variety of failed strategies. This will work.
Why should a person who doesn’t use music pay this tax? Because supporting creators is important to the cultural and spiritual growth of society, it’s a necessary social service. The precedent for a copyright tax was planted over a 100 years ago by our Congress which in its wisdom gave creators rights to protect and secure literary property. The unique properties of the Internet make it necessary to shift these payments from being a royalty indirectly paid by the consumer to a direct copyright tax, a line item at the bottom of each person’s ISP bill.
The exact details and how it relates to other forms of intellectual property such as movies and books can be saved for another article, except for the legitimate question, “Can a toll raise enough money to make a difference?” Absolutely. If each of the 150 million U.S. Internet subscribers (conservative number) paid a monthly $5 fee in exchange for unlimited access to all online music, it would equate to almost $9 billion annually in online revenue. The RIAA now pegs the retail value of the physical and digital U.S. music industry at about $7 billion, so adding $9 billion would jumpstart the industry overnight.
Do you believe that the art created by songwriters, artists, record labels and publishers is valuable to our culture, a social service for the greater good? If so, then an Internet royalty tax is a reasonable response.