Digitization Offers Prospect for Music Licensing Reform

Digitization Offers Prospect for Music Licensing Reform

Lenard, White Proposal Advances Market Forces in Licensing

Contact: Amy Smorodin
(202) 828-4405

December 9, 2015 – “Digitization offers the prospect of a more competitive, less regulatory music licensing system,” state Thomas Lenard and Lawrence White in “Moving Music Licensing into the Digital Era: More Competition and Less Regulation” released today by the Technology Policy Institute.

Lenard, Technology Policy Institute President and Senior Fellow, and White, Professor of Economics at the NYU Stern School of Business, observe that the current “complicated, arcane and heavily regulated” system is “oriented toward transmitting music through analog channels.” In this system, “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.”

Lenard and White discern that new technology has made the licensing market more conducive to direct negotiation between users and license holders and “we are already starting to see licensing occur outside of the centralized performing rights and regulatory institutions.” To reinforce these changes, they suggest a series of steps. These include:

  • The development of a comprehensive, standardized database of musical compositions (including the specific sound recording) and their owners so that users can readily identify from whom they need to license rights. This would include a “safe harbor” provision that would provide the appropriate incentives for rights owners to contribute their information to the database.
  • A greater ability of intermediaries to aggregate the various categories of music ownership rights.
  • The consequent development of more competitive negotiations and transactions between music rights holders and music distributors.
    Lenard and White conclude, “In the current era, where electronic systems can greatly reduce transactions costs, we believe that a competitive marketplace can replace much, if not all, of the current regulatory structure for music licensing and rate determination, but this requires a move away from the current reliance on collective licensing for both composition and sound recording performance licenses.”

“Moving Music Licensing into the Digital Era: More Competition and Less Regulation” is available on the TPI website. The paper is also being released as a NYU Stern School of Business Working paper, which can be found here.

The Technology Policy Institute

The Technology Policy Institute is a non-profit research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at https://techpolicyinstitute.org/.

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