Policy Papers

Moving Music Licensing Into the Digital Era: More Competition and Less Regulation

by and

The system for licensing music in the United States for public performances through radio, television, digital services and other distribution media is complicated, arcane and heavily regulated. Its basic structure is oriented toward transmitting music through analog channels. Although much of the pricing of music rights is supposed to be based on competitive prices, the current interdependent system of collective licensing of performing rights and widespread regulation of music prices (royalties) is inconsistent with the development of a competitive market and the associated efficiencies. Collective licensing by a handful of performing rights organizations (PROs) provides the major rationale for price regulation. However, the existence of price regulation has entrenched collective licensing and the position of those PROs. A more competitive system entails moving away from collective licensing.

In this paper we review the current structure of the music licensing system and suggest ways of making it more competitive and less reliant on regulation. Central to our proposals are: a) a comprehensive, standardized database of musical compositions (including the specific sound recording version, where relevant) and their owners so that distributors and users can readily identify from whom they need to license rights, along with a “safe harbor” provision that would provide the appropriate incentives for rights owners to contribute their information to the database; b) a greater ability of intermediaries to aggregate the various categories of music ownership rights; and c) the consequent development of more competitive negotiations and transactions between music rights holders and music distributors.

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