As the theme for World IP Day 2016 is “Digital Creativity: Culture Reimagined,” it is a good time to remind everyone who loves music, particularly those who access songs online, that the royalty structure in the United States is out of balance with today’s distribution methods. 

It is likely that very few of the hundreds of millions of people who download songs or otherwise listen to music anywhere around the country are aware that 75 percent of a songwriter’s income is subject to federal government price controls.

The licensing and distribution of musical compositions are subject to rules that were established early in the twentieth century.  In 1908, the Supreme Court found that piano rolls were not copies of musical compositions, but instead were components of a player piano machine in White Smith v. Apollo Music.  Congress responded to this decision in 1909 by granting copyright holders (songwriters) the right to control the “mechanical” reproduction of their work, subject to a compulsory licensing process.  Manufacturers of piano rolls could reproduce a musical work in exchange for a non-negotiated royalty fee payment set by the government, which at that time was set at $0.02 per mechanical reproduction. 

Over time, these same rules were applied to records, CDs, and downloaded digital or on-demand streaming music.  Even assuming the government should control these prices, based on the rate of inflation the royalty rate for mechanical reproductions should be $0.50.  However, it is only $0.09. 

In 1941, Congress further crippled the market place for songwriters by forcing the two largest performing rights organizations, BMI and ASCAP, to negotiate blanket licenses, collect royalties, and enforce rights on behalf of songwriters when their songs are performed on AM/FM radio, or in bars, restaurants and stadiums.  These consent decrees are governed by the Department of Justice, and have not been updated to allow songwriters to obtain fair market value for public performance royalties.

Currently, the only royalty that is negotiated with songwriters directly is for the public performance of a musical work, such as its use in a movie.  That accounts for only 25 percent of the royalties a songwriter receives, and needless to say, the number of songs used in movies is quite limited.  All other royalty rates are set by the government.

As the digital economy continues to grow and new mechanical distribution platforms are developed, songwriters should be able to negotiate market value royalty fees for all performances, distribution and reproduction of their work.  If not, innovation and creativity will suffer, and the theme of World IP Day will be diminished.