A tale of two industries: the “value gap” dilemma in music distribution

08 Aug 2016 by Agustín Reyna on Copyright

When Napster appeared on the scene in the late 1990s there was a clear need for record labels to use information technology to facilitate the digital distribution of music. This became even more apparent after rights holders were unsuccessful in stopping peer-to-peer sharing by means of copyright enforcement.

The 2000s brought new opportunities to music distribution with the launch of iTunes and the popular streaming service Spotify, in 2001 and 2008 respectively. By 2010 Apple’s iTunes reached 10 billion downloads while Spotify has recently passed the 30 million subscriber mark. Apple also released Apple Music, its music streaming service, competing directly with the successful Spotify and its kin. Last year total digital services amounted to almost 50% of music global revenues (IFPI, 2016).

While the emergence of streaming services has brought new challenges to musicians’ remuneration and physical sales, they have also considerably reduced unauthorised downloading (JRC 2015); virtually eliminating piracy in some developed economies like Norway.

YouTube, with its billion users watching hundreds of millions of hours of video per day, is currently a leading means for consumers to access audiovisual content, music videos and song tracks. Such content is found in official channels like VEVO or in channels run by users.

Addressing the “value gap”

The music industry complains that unlike subscription services like Spotify, Google’s contribution in royalties is significantly low, despite of the high number of consumers listening to music through YouTube. The industry calls this phenomenon the “value gap”. However, what is the real issue at stake here? Is it the fact that the legal means to keep unauthorised content off the platform are ineffective in the eyes of rights holders? Or that the safe harbour exception that protects YouTube, as a mere intermediary host, coupled with the platform’s market power, makes Google immune to any pressure to negotiate licenses?

Against this backdrop, I think there are few aspects to bear in mind before deciding on the best policy response:

First, ‘notice and take down’ proceedings to remove unauthorised content seem to be insufficient to solve the “value gap”. This is not because of their potential lack of effectiveness in the face of millions of users uploading content, but for the simple reason that such measures do not amount to an increase in revenues.

Secondly, it is necessary to differentiate two situations concerning content uploaded by users: on one side, we have works like music videos, songs and albums that are uploaded and reproduced in their entirety without the authorisation of the rights holder: for example, a user who uploads the tracks of the new album of Kanye West. On the other hand, we have derivative works, or user-generated content, in which consumers take parts of a pre-existing work and transform it to create a new work - for example, a home video of a kid dancing to the rhythm of her favourite tune or the remix of a song (Lessig, 2008). Under current EU copyright law both acts - although ostensibly different - would amount to an infringement of the rights holder’s right of reproduction and communication to the public.

European legislators should draw a clear-line between these two scenarios: Derivative works should be permitted in the EU under a new user-generated content exception (Lambrecht and Cabay, 2016), similar to the one Canada adopted in its Copyright Modernisation Act in 2012 (Geist, 2012; Rostama, 2015). Meanwhile, unauthorised reproductions of works should continue to be subject to proportionate ‘take down’ proceedings, in compliance with the existing EU framework.

In simple terms, Google has been asked to give a bigger share of its advertising revenues to rights holders. This could be a legitimate claim, in a similar way to the requests of authors for better contractual rights. However, the question we must consider is whether reforming copyright law is the appropriate solution to achieve the aims of the music industry.

Ab(using) copyright law?

In practice, the industry is suggesting to use copyright law to alter the “safe harbour” regime of the E-commerce Directive. This would then mean that YouTube would not currently fulfil the requirements needed to benefit from the liability exception, regarding copyright infringements committed by users uploading protected works. This alteration would require the adaptation of key concepts of the copyright framework like the “act of communication to the public” and (the right of) “making available” (European Commission, 2015) in order to bypass the E-Commerce Directive.

These concepts have already been interpreted by the European Court of Justice in the light of the liability regime of the E-commerce Directive and the EU Charter of Fundamental Rights (Hugenholtz, 2001; Sganga, 2015). In this sense, the Court has already stated that intermediaries cannot be asked to install a general filtering system, covering all of its users, in order to prevent the unlawful use of musical and audio-visual works (see paragraphs 51-53 of SABAM ruling) or that something as basic as hyperlinking in the internet does not amount to a copyright infringement (see paragraph 30 of SVENSSON ruling and paragraphs 77-79 of the opinion of AG Wathelet in the GS MEDIA case). Changing the law, in a way that would lead to different interpretations of those terms, just to make YouTube liable, could have serious implications for the functioning of the online ecosystem as we know it (Bridy, 2015).

Recommendations

I would warn legislators against using the law to regulate the behaviour of just one specific company. Once adopted any new law applies to all market players. Focusing on YouTube to please one industry increases the risk of unforeseeable and potentially negative consequences in the online environment as a whole. While copyright law may not be the solution to the “value gap”, there are other tools that could be used, including competition law enforcement to tackle the specific behaviour of one company or clarifying the status of platforms like YouTube within the E-Commerce Directive (by means of additional guidance on the application of the safe harbour regime).

The fight between Google and the music industry is a commercial one. Copyright regulation should not simply be used as a weapon by one industry against another. In the middle of this battlefield there are consumers, start-ups and entrepreneurs, companies, libraries, cultural organisations and artists all relying on a well-functioning internet. Legislators should act to protect the real benefits that the internet provides to society from the crossfire of an argument between two industries.

References

Bridy A. (2015), “Targeting Safe Harbours to Solve the Music Industry’s YouTube Problem”, http://cyberlaw.stanford.edu/blog/2015/04/targeting-safe-harbors-solve-music-industry’s-youtube-proble

European Commission (2015), communication “Towards a modern, more European copyright framework”, COM(2015) 626final, p. 10

Geist M. (2012), “What the New Copyright Law Means for You”, http://www.michaelgeist.ca/2012/11/c-11-impact/

Hugenholtz P.B. (2001), “Copyright and Freedom of Expression in Europe” in Cooper Dreyfuss R., Leenheer Zimmerman D., First H. (eds.), Expanding the Boundaries of Intellectual Property. Innovation Policy for the Knowledge Society, Oxford University Press, p. 1-21

IFPI (2016), “Global Music Report - Music Consumption Exploding Worldwide”, http://www.ifpi.org/downloads/GMR2016.pdf

Joint Research Centre (2015), “Streaming Reaches Flood Stage: Does Spotify Stimulate or Depress Music Sales?”, Working Paper 2015/05, http://dmnrocks.wpengine.com/wp-content/uploads/2015/10/EU_JRC_Study_Spotify.pdf

Lambrecht, M, Cabay, J. (2016). “Remix Allowed - Avenues for Copyright Reform Inspired by Canada”, Journal of Intellectual Property Law & Practice, Vol. 11, no. 1, p. 21-36

Lessig L. (2008), Remix: Making Art and Commerce Thrive in the Hybrid Economy, Penguin Press

Rostama G. (2015), “Remix Culture and Amateur Creativity: A Copyright Dilemma”, WIPO Magazine, June 2015, p. 22-25

Sganga C. (2015), “EU Copyright Law Between Property and Fundamental Rights: A Proposal to Connect the Dots” in Caso R. and Giovanella F. (Eds), Balancing Copyright Law in the Digital Age, Springer, p. 1-26

References to case law of the Court of Justice of the European Union:

Decision of 24 November 2011 in C-70/10 - Scarlet Extended SA v Société belge des auteurs, compositeurs et éditeurs SCRL (SABAM)

Decision of 13 February 2014 in C-466/12 - Nils Svensson et al. v Retriever Sverige AB

Opinion of Advocate General Wathelet of 7 April 2016 in C-160/15 - GS Media BV v Sanoma Media Netherlands BV et al.

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