From Napster to Spotify: How the Music Industry is Winning the Legal Battle Over Music Streaming

By: Christopher Lewis *| Staff Writer

The arrival of cheap music streaming services like Spotify has created a growing discontent between the music industry and those wishing to stream the music; however, this started long before Spotify became the predominant streaming service. Napster changed how people around the world accessed music on the internet, consequently, the music industry had to derive a new way to profit from these services. Instead of buying physical CDs, people were listening to music on the internet, and the music industry was missing out on a valuable source of income. While Napster was not technically a streaming service, it did help propel the music industry into this new age as people began to realize the immense potential that the internet contained in the music industry. However, the problem has now gone beyond artists simply trying to receive a wage for their work as artists now are tasked with obtaining a fair wage. The music industry has only slowly begun to realize the immense power that they hold within these discussions, as can be seen through their petitions to then President-elect Trump where they asked for tougher intellectual property laws in the music industry.

One of the ways through which the music industry has regulated these new services is through mechanical licenses. To be able to stream music online, the streaming source must have a mechanical license which can be purchased through companies like HarryFox. The mechanical license allows for the holder to use the song in certain ways. However, this license is not an unlimited license, instead, it only gives the holder the right to reproduce the content in certain formats such as through a streaming service. Typically, music publishing companies then collect the fees, take a commission, and remit the rest to the artists. Therefore, it is crucial for the songwriters that these mechanical licenses are used as they represent the songwriter’s best avenue for payment for his or her song.

Before this year, songwriters were promised at least a 10.5 percent royalty fee of the streaming revenues. On January 27, 2018, however, the Copyright Royalty Board elected to increase the mandatory royalty fee to 15.1 percent which comes at the end of a lengthy trial between various songwriters and various parents companies of music streaming services. This serves as a great boon to songwriters who feel like they are not justly compensated by the streaming services. However, the fear is that it could be disastrous for streaming services which are built on low price models designed for students.

The real question is then what is the correct balance between Intellectual Property rights and allowing the public to benefit from this great service? This is the balance that the Copyright Royalty Board is trying to strike as they try to calculate a correct number for these purposes. If the Board calculates a fee that is too high, the streaming services could die as customers might not find them economically attractive; however, if the Board calculates a fee that is too low, the music industry could decide to stop producing music as it is no longer warranted. In addition to this internal pressure, the Board faced immense outside pressure here and this decision signifies just how far that the Board is willing to listen to the industry to determine what a fair fee is. How far they are willing to go in listening to the industry is going to determine how relevant the streaming services are going to be in the future. In an industry like music streaming services where the fees are minimal, the prospect of an increase in those fees could prove debilitating. One streaming service, Spotify, has recognized the importance of these fees and has been fighting them in court. These cases will then directly impact the creation of future music as the market will have to respond to the change in fees. Just like Napster changed how we listen to music, the cases brought against Spotify will have a similar effect based upon the damages awarded by the court which can go up to $150,000 per infringement. If the courts award these high damages, not only will it discourage new companies from joining the music streaming industry, but it will also provide a major incentive for streaming companies to pay accurate fees. This will impact the manner in which we receive music and its availability as companies will be wary of future penalties. Regardless of the ultimate decision, there will be an enormous impact on the music industry.

Christopher is a Second-Year Law Student at Wake Forest University where he is a staff member on the Journal of Business and Intellectual Property Law. He is an alumnus of Clemson University where he graduated cum laude with a major in electrical engineering and a minor in mathematics. Christopher plans to pursue a career in Intellectual Property Law upon graduating.