David Oxenford: Adele’s New Record is Not on Online Streaming Services – Except Where It Is – The Difference Between Interactive and Noninteractive Streaming

david oxenford 02This guest column is by broadcast law attorney and frequent guest contributor David Oxenford. The article was originally published on his Broadcast Law Blog.

Adele’s decision to not stream her new CD “25 on services like Apple Music and Spotify has been the talk of the entertainment press pages – like this article from the New York Times. These articles make it sound like, if you listen to any Internet music service, you’ll not hear a song from the new record. But, in fact, if you listen to an Internet radio service, like a Pandora, iHeart Radio, Accuradio, the streams of over-the-air radio stations, or any of the myriad of other “noninteractive services” that are available online, you will hear music from 25. The legal distinctions that allow these services to play Adele’s new music is often not recognized or even acknowledged by the popular press. Why the difference?

As we’ve written before in connection with music from the Beatles (see our articles here and here), the difference deals with how music is licensed for use by different types of digital music services. On-demand or “interactive” audio services, like Spotify and Apple Music or the recently in-the-news Rdio, obtain music licenses through negotiations with the copyright holders of the sound recordings – usually the record labels. These are services where a listener can specify the next track that he or she will hear, or where the listener can store playlists of music they have selected, or even hear on-demand pre-arranged playlists with the tracks in the playlist identified in advance by the service. If the record labels and the service can’t come to terms for the use of music by one of these interactive services, then the music controlled by the label does not get streamed. Often, these negotiations can be lengthy, witness the delay of over a year from when Spotify’s announced its launch in the US and when that launch actually took place, because of the complexity and adversarial nature of these negotiations. In some cases, major artists, like Adele, and before her Taylor Swift and, for a long time, bands like the Beatles and Metallica, had agreements with their labels that gave them the rights to opt out of any deal that their labels did with these audio services. So, if an artist like Adele can opt out of being played by a service like Spotify, why is she being streamed by online radio?

Online noninteractive services (often called Internet radio or webcasting), where the listener cannot pick the next song they will hear) do not need to negotiate with the record labels to get permission to play a sound recording’ like Adele’s 25. Instead, these services pay for their music licensing through a “statutory” or “compulsory” license, where they get access to all music legally released in the United States. While these services don’t allow a listener to know the song that they will hear next, the listener can have some influence on the genre or sound of what is being played. But it is important that the service cannot allow the listener to know which songs are coming next. See our article here about one court case defining the limits on interactivity. In exchange for this right to play what they want, these services must pay a fee that is set by the Copyright Royalty Board, soon to be set for 2016-2020, see our article here.

In addition to paying the fee for use of the statutory license (paid to SoundExchange), the service must abide by certain limits on how they use the music. This includes limiting how frequently they can play music by a particular artist or from a specific CD. This is called the “performance complement,” which for instance, limits services from playing more than 3 songs in a row by the same artist, 2 songs in a row from the same CD, or 4 songs from the same artist in a 4 hour period (note that broadcasters, streaming their over-the-air signals, have an exemption from these limits negotiated with the record labels for programs that are in a format like those normally heard on over-the-air radio stations, a special exemption that ends at the end of this year, see our article here). The rules also require that the services not encourage the recording of their streams, not use statutorily licensed music specifically to promote commercial products (you can’t rely on the statutory license to use a recording of the song Leaving on a Jet Plane in a commercial for an airline), and when a song is streamed, the service must provide visual identification of the song’s name, artist and album title wherever technically possible. And stations cannot specifically state when a particular song will be played – with very limited exceptions, no playlists or program guides specifying when a specific song will be played can be produced by the service relying on the statutory license.

Why the distinction between interactive and noninteractive services? When Congress created the statutory license, it was very concerned with the potential for digital music to replace the sale of music. In fact, the fear of making “perfect” digital copies from online music services was partially driving the legislative efforts. By not allowing online stations to play too many songs from the same artist or album, or to even provide program guides that identify when a song will be played, listeners could not get their digital recorders ready to copy a song. Instead, the services that can rely on the statutory license act just like over-the-air radio and promote music and music discovery. The statutory license allows such services easy access to music, like radio has, by not requiring services to track down and negotiate with every copyright holder of every song that they want to play –instead they pay SoundExchange for their music use, and SoundExchange takes care of the distribution.

By contrast, on-demand services can provide a direct replacement for the purchase of music. Thus, Congress decided that such services needed to negotiate directly with the copyright holder to get permission to use the music – with a marketplace negotiation providing a way for the copyright holder to determine the value of the replaced sales for which these services account. There were limits put on the copyright holder, however, in not favoring in negotiations services in which the holder itself had an ownership interest, to prevent the record companies from establishing their own digital services and refusing to license any competition.

This discussion only scratches the surface in explaining the legal differences between on-demand and noninteractive services. For instance, as we explained in more depth in our article here, the rights to perform the underlying musical composition also differ between noninteractive and on-demand services in a very similar way – with most compositions available to noninteractive services through payments to Performing Rights Organizations (“PROs”) like ASCAP, BMI and SESAC, while interactive services must also deal directly with the music publishers who routinely hold the copyright to compositions, or pay through a Section 115 statutory license to compensate these publishers (though in a manner less straightforward than that administered by SoundExchange). We also have not talked about non-US performances of music by these services, where the rules set up in the United States drawing lines between interactive and noninteractive services are not always the same (see our article here). So it is a complicated music licensing world – but one in which an artist like Adele with enough market power can place some restrictions on how their music is heard by the public.

David Oxenford