Washington, D.C. - Today, Rep. Berman, Chairman of the Judiciary Subcommittee on Courts, the Internet, and Intellectual Property, held a hearing entitled, Reforming Section 115 of the Copyright Act for the Digital Age.  

 

Below is the text of his opening statement:

 

I would be remiss to begin any music licensing hearing without acknowledging that reforming Section 115 may not be the top priority of many in this room.  After all, small webcasters are scrambling to assess the viability of their current business models after the recent rate determination by the Copyright Royalty Board.  In addition, the recent announcement of the XM/Sirius merger has exposed the glaring inequities of the Copyright Act in its application to different technologies (internet, cable/ satellite, and of course the over-the-air-broadcasters).  This raises the question:  should I and interested colleagues reintroduce a version of Perform Act and is it finally time for a performance right to extend to terrestrial radio?  These developments highlight a quintessential issue for the Subcommittee - should we proceed with comprehensive reform of music licensing, or deal with it in a piecemeal fashion?  For the sake of this hearing, the Subcommittee will limit its focus to Section 115.    

 

Many times over the past several years, this Subcommittee has explored the need for reforming the Section 115 compulsory license for musical works.  All interested parties agree that it is broken, and that the licensing structure that was developed to deal with distribution of piano rolls, while updated, still does not provide a fluid mechanism for new physical and digital music delivery models.  Complaints about Section 115 range from its administrative burdens relating to the complexities of the notice requirements to the legal ambiguities relating to the definition of digital phonorecord delivery ("DPD"), or more broadly, where, or if, a performance ends and reproduction begins.  However, no consensus exists for how to fix Section 115. 

 

At the macro-level, parties agree that rampant piracy over Peer-to-Peer Networks creates a dire need to address digital music licensing reform.   This piracy harms an industry that provides jobs in my district and throughout the country, and it hurts all the parties involved - from the songwriter, to the recording artist, and to all the businesses that service the industry. In a post-Grokster environment, we have a unique opportunity to channel consumers away from illegal P2P networks towards legitimate online music distribution services.  But the window is closing. 

 

New business models are thriving.  In 2006, digital music sales totaled $2 billion (up from $1.1 billion in 2005), and consumers downloaded an estimated 795 million songs (up 89% from the 2005 figures).  Currently, there are 4 million tracks available for downloading, facilitated by 500 online music services available in over 40 countries.  Further fueling the growth of digital downloads, portable music player sales increased 43% to $120 million in 2006.   In addition, ringtones, once dismissed as nothing more than a passing fad, have become a $3 billion worldwide market.  All good news.

 

However, despite their meteoric growth, legal online music services still represent the equivalent of a fly on the back of the online piracy elephant.  Yesterday's Wall Street Journal described how digital music has failed to compensate for lost sales of CDs and that according to BigChampagne LLC - one billion songs a month are traded on illegal file sharing networks.  Therefore, since there is broad consensus that inefficiencies in Section 115 hinder the rollout of new legal music offerings, we must turn our focus to the question of how to reform Section 115.  I fear that if we do not address particular reforms to Section 115 soon, legitimate music services will not be able to compete with "free" or provide consumers with their choice of music anytime, anyplace, and in any format while at the same time ensuring that creators receive adequate compensation.

 

There have been multiple suggestions for reforming the compulsory license, including 1) designating an agent to collectively manage reproduction and distribution rights, 2) collectively licensing performance, distribution and reproduction rights through a Music Rights Organization ("MRO"), 3) amending 115 to ease just the administrative burden and legal uncertainty, and 4" repealing Section 115 and allowing the marketplace to regulate licensing.

  

Last year, the former Chairman, Congressman Lamar Smith, made a valiant effort to resolve the issue.  Perhaps back then, the interested parties lacked the motivation to act.  Clearly, all parties would benefit from Section 115 reform.  For example, the business survival of Digital Media Association members depends on the success of legitimate, online music services.  In addition, the proliferation of additional legal music offerings will provide vital new sources of royalties for members of the National Music Publishers Association and songwriters.  Finally, RIAA members will also benefit through the distribution of their works in secure new formats.

 

Since the Subcommittee last met on this issue, there have been several developments.  First, the Copyright Office determined that ringtones fall within the scope of the 115 license, though the determination is on appeal.  Also, ASCAP and digital music services are facing off in federal court in New York over the rate for the public performance implicated in a download, and Copyright Royalty Judges are about to set a discovery schedule in the Section 115 rate proceeding.

 

I do not deny that several obstacles seem to remain in the way of full-scale realization of online music possibilities.  Whatever the outcome of the reforms we ultimately adopt, our focus needs to remain on facilitating the licensing of distribution, and reproduction rights so that consumers can receive music in the manner they want, while at the same time providing rightful compensation to the creators of music.  Rewards for innovation are hard enough to come by for the songwriters who are often the first to create but last to be paid. 

 

I look forward to hearing from our witness Marybeth Peters today.