Forbes: Digital music industry innovation and progress "impeded by the current copyright system"

Editor's note: RAIN will return on Tuesday, May 29. Have a great Memorial Day weekend!

"To say that copyright law is complex would be an understatement," writes Forbes contributor John Villasenor. Few RAIN readers likely need to be told that. Nor should they be surprised by Villasenor's comment that the Copyright Royalty Board's "willing buyer/willing seller" model for setting Internet radio royalty rates "has not worked ideally." 

Former SoundExchange general counsel Gary Greenstein, now a copyright attorney with Wilson, Sonsini, Goodrich & Rosati, tells Forbes that "the willing buyer/willing seller standard, as it has been applied by the CRB, has resulted in rates that would likely drive many nonsubscription, Internet-based digital music services out of business."

Congress had to pass two Webcaster Settlement Acts (in 2008 and 2009, RAIN coverage here, here and here) to "temporarily grant SoundExchange, a non-government entity, with the extraordinary power to negotiate lower rates." You can read more about those negotiated rates in RAIN here. And, as Villasenor writes, even "those 'lower' rates can still be very high when measured with respect to revenue."

For example, Pandora paid nearly 70% of revenues to content acquisition costs -- which include royalties -- according to their Q1 2013 fiscal results (RAIN coverage here).

"So where does all of this leave things?" ponders Villasenor. "The short answer: in need of repair."

He argues that "some of the policy objectives enshrined in copyright laws of the United States may stifle innovation and impede new business opportunities… America’s status as a global technology leader is due in large part to disruptive advances that upend prevailing industry practices, and in doing so, often interfere with streams of revenue flowing to less innovative incumbents. Yet this is precisely the sort of progress that is impeded by the current copyright system as it applies to certain digital music services."

Rightsholders -- songwriters, recording artists, record labels -- are absolutely entitled to "be fairly paid for their work, and deserve the protections of a well-designed copyright royalty framework," writes Villasenor.

"But it’s also important not to lose sight of the public’s interest in having access, under reasonable terms, to copyrighted material." Villasenor quotes the Supreme Court from a 1975 ruling: "The immediate effect of our copyright law is to secure a fair return for an 'author's' creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good."

"That [public] interest is no less valid if it happens to be served using non-traditional business models such as Internet radio," concludes Villasenor. You can find his article in Forbes here.

Do you agree with Villasenor's argument? Disagree? Let us know in the comment section!