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THE DIGITAL PERFORMANCE RIGHT IN SOUND RECORDINGS ACT OF 1995 (DPSRA) — Why it doesn't help artists.

The DPSRA represents the first time public performance rights in sound recordings have been offered protection. Copyright holders in sound recordings now have the exclusive right "to perform the copyrighted work publicly by means of a digital audio transmission." This allows the record companies who hold the rights in sound recordings to collect a royalty on digital "performances" of the sound recording, (this applies to digital "transmissions," which are interpreted to include downloading, uploading, and streaming) and pass the royalty on to the appropriate sources.

In 1998, the Digital Millennium Copyright Act (DMCA) was enacted. The DMCA mandated a royalty payment of 50% to the copyright holder (most often the record label), 45% to the featured artist, and 5% to the non-featured musicians and vocalists. However, this royalty applies only to non-interactive webcasting, as defined by the compulsory structure, which includes mediums such as streaming audio.

The problem is that for an interactive service such as industry-owned Bertelsmann/Napster, My.Mp3.com, MusicNet, or Pressplay, the mandated royalty payment for artists does not apply. The artists have to settle for whatever they are promised in their label deal. This means that an artist's royalty payment can be as low as 7%. Furthermore, an artist's royalties are recoupable against their outstanding balance with the label. The difference between a direct payment to an artist and a recoupable payment is dramatic for both the artist and the label. For the artist, it may be the difference between some payment and none. As such, for most artists, there will be little revenue from interactive music services under the licensing structure that exists today.

Another issue is that the DPRSA contains provisions for labels to strike exclusive license agreements with webcasters (non-interactive services). Under an exclusive license, artists once again potentially lose the 45% afforded to them by the DMCA mandate. Since the incentive is greater for the label to negotiate directly with webcasters, the labels could retain more money possibly at a lower rate.

There is also the matter of equity stakes the labels have negotiated with digital media companies. It is now common for the labels to take equity in digital media companies as a precondition to licensing their content. For instance, AOL Time Warner, Bertelsmann, and EMI hold equity in MusicNet, and Sony and Universal in Pressplay--equity shares that will not be offered to recording artists. Perhaps one way to level this inequity is to ensure direct, substantial, and non-recoupable payment to artists from interactive music services.

RAC believes that digital performance rights for sound recordings should mirror the writer's system. Writers of music share a performance right with publishers in which the writer's 50% share is paid directly to the writer, and is not subject to recoupment.

THE MUSIC ONLINE COMPETITION ACT OF 2001 (MOCA) - The US Justice Department investigation into restraint of trade on the Internet.

MOCA seeks to streamline the distribution of music over the Internet, increase competition, and avoid the monopolization of the online music industry by the record companies. The recent formation of two joint ventures between record companies and online music distributors, MusicNet and Pressplay, prompted this legislative initiative. According to a Duke & Technology Review iBrief, the congressmen who introduced MOCA have touted the bill as beneficial for consumers and industry members alike. Not only would the bill make it easier for online companies to obtain required licenses, but increased competition would lead to lower costs and more choice for consumers. The bill also seeks to assist recording artists by mandating direct compensation for the online distribution of their music.

The US Justice Department has begun antitrust investigations into the online music business in order to avoid online music being dominated by the "big five" music companies. The MOCA hopes to prevent MusicNet (which was funded by Warner Music Group, Bertelsmann AG, and EMI) and Pressplay (which is owned by Sony and Vivendi Universal), the two upcoming online subscription services, from dominating the marketplace.