After the Wynk decision of the Bombay High Court, which came to the conclusion that internet broadcasting is not covered under Section 31D of the Copyright Act, the record labels are on a drive to convince the Government, industry and academics that statutory licensing does not provide fair value to sound recording holders. Their efforts seem to have doubled and tripled after publication of the draft Copyright Rules, 2019, which proposed to include internet broadcasting within the scope of statutory licensing scheme under Section 31D. Led by the Indian Music Industry, the record labels are arguing that fair value for use of sound recordings is only possible through voluntary licensing, and that voluntary licensing is best suited to promote growth of the recorded music industry, which will propel economic growth. I disagree with the views being put forth by the record labels on various grounds, some of which I have outlined/elaborated in this post.
Statutory License and Scope of Section 31 D
Section 31D was incorporated in the Copyright Act through the 2012 amendment, which provided the right of royalty to authors, made copyright societies mandatory licensing organisations for literary and musical works incorporated in films, introduced statutory licensing schemes for version recordings and broadcasting organisations, expanded exemptions to infringement, and introduced anti-circumvention laws, among others. The amendment addressed several issues relating to the pre-existing copyright law, which included unfair treatment of authors, unethical and illegal business practices of copyright holders, and failure of collective management systems. The objective of introducing Section 31D was to eliminate less than transparent, unfair and unethical business practices, and to establish a system of fair, transparent, and workable licensing scheme for the growing broadcasting sector in order to facilitate and enable access for the benefit of the general public.
Section 31D provides for a statutory license to broadcasting organisations to broadcast and perform literary and musical compositions, and sound recordings. The scope of the license available under the section is very narrow, and only two specific rights are covered, which relate to three types of works. The first clause of the section does not refer to the nature of broadcasting organisations eligible for the license. A subsequent clause (clause 3) mentions that royalty rates for radio and television broadcasting must be different. Based on this clause and relevant copyright rules, the Bombay High Court arrived at the conclusion that only radio and television broadcasting are covered under the section. However, that was merely an interim order, which, in my opinion, is based on an incorrect understanding of the section and its scope. To possibly remedy the misconstruction of the law, the Government decided to modify the copyright rules to include internet broadcasting within their scope. The rules, if notified, will certainly be challenged by the recorded music industry, and we can expect a long drawn litigation in the matter.
Though Section 31D came into the Copyright Act in 2012, the provision has so far not been implemented. The copyright board, now the Intellectual Property Appellate Board (IPAB), has not fixed the royalty rate so far, and the statutory licensing scheme is non-functional as of date. If the IPAB were to fix the royalty rate during the next one or two years, the recorded music industry as well as authors and copyright owners of literary and musical works will be given an opportunity of being heard, and the IPAB can be relied upon to arrive at a royalty rate that is fair for rights owners, broadcasting organisations, authors and the general public. Furthermore, Section 31D provides for a transparent process and maintenance of records for authors and copyright owners to review, and the recorded music industry has nothing to fear with respect to receipt of licensing revenues.
It is also noteworthy that the statutory licensing scheme provided under Section 31D does not eliminate voluntary licensing options. The recorded music industry and copyright owners are free to enter into voluntary licenses and seek the fair value they desire. It is true that statutory licensing scheme will eliminate the possibility of exclusive licensing deals and will set benchmarks for royalty rates, but those will come with a set of conditions, which may not necessarily be desirable for both broadcasting organisations and copyright owners. Also, from the language of Section 31D, only two rights, broadcasting and performance, are available under the statutory license under Section 31D, and several other rights such as synchronisation, reproduction, and so on are not covered. In the said context, it is difficult to understand the basis of fair value arguments of the recorded music industry. Through the statutory licensing scheme, the recorded music industry will get more than fair value, and not having such a scheme will give unfair advantage to the industry, which the 2012 amendment seeks to remedy.
The Need for Statutory Licensing
Section 31D was necessitated by the failure of the music industry in general, and the recorded music industry in particular, to license works in a fair and equitable manner, and facilitate access to the public. The diversity in the music industry combined with lack of organised licensing systems and failure of collective management organisations to effectively license works led to statutory license legislation. If the music industry is organised, united, fair and transparent with respect to licensing, statutory licensing will not be required. But, unfortunately, that is not the case, and will not be in the near future.
From our experience of attempting to acquire licenses for a few of our startup clients during the last few months, we have learned that the process continues to be difficult, cumbersome and impossible. One startup wanted to acquire licenses with respect to lyrics, musical compositions and sound recordings of a list of songs held by different copyright owners. To start with, identifying the copyright owners and their contact information took a long time. Once copyright owners were identified, attempts were made to connect with them for licensing, but most of them did not respond. Whoever responded was not interested in considering the startup’s proposal and was inflexible with the license fee/royalty. Even discussions with copyright societies did not yield any results. Frustrated after six months of efforts, the startup decided to modify its business model to fit it within the parameters of fair dealing/exceptions. This is just one among many examples of the failure of the voluntary music licensing model in India.
As it stands today, one cannot easily acquire music licenses even if she is willing. The only alternative in such a scenario is statutory licensing. Such a model will make it easy to acquire licenses and comply with the law. It will in one stroke remove hurdles to licensing, compliance, and progress. It is in fact time to fix royalty rate for all forms of broadcasting including internet broadcasting and give effect to Section 31D. Continuing with voluntary licensing will only harm the progress of creativity and creative industry.
Authors and Fairness
It is an established fact that authors do not receive any benefits, or receive very little benefits, accruing from licensing of lyrics, musical compositions and sound recordings. It is to address this problem that royalty sharing was introduced through the 2012 amendment and made mandatory. Historically, the recorded music industry has not been fair to authors, and continuing voluntary licensing will only perpetuate the unfairness. Most record labels do not believe that authors deserve to get a share of royalty when sound recordings are performed or commercialised otherwise. They in fact claim that sound recordings are independent works, which do not amount to use of lyrics and musical compositions. On one hand, they do not wish to share royalty with authors, and on the other hand, the record labels wish to be fairly compensated through voluntary licensing. Voluntary licensing means lack of transparency, which in turn means an option to not share details with authors and/or not pay them the royalty share due. Statutory licensing on the other hand provides opportunities for authors to monitor use of their works, and also, sets benchmarks for non-monetary license deals.
Value of Statutory Licenses
Broadcasting organisations have been following the voluntary licensing model till date, and whether the introduction of the statutory licensing scheme will produce results will only be known if it is implemented. Implementing the statutory licensing scheme has the potential of solving the problems facing the copyright owners, and can facilitate growth of the entertainment industry as a whole, enhance transparency with royalty sharing, and make music more accessible to the general public. The collective management system through copyright societies has not succeeded as much as expected in India, and statutory licensing may solve their problems as well. The reported revenue of IPRS (Indian Performing Rights Society) was only forty five (45) crores, and that of PPL (phonographic Performance Limited) was just around eighty six (86) crores in 2018. IPRS represents close to three thousand authors/owners, and PPL represents more than three hundred record labels/copyright owners. Around eighteen (18) percent of IPRS’ revenue is attributable to broadcasting, and about twenty three (23) percent of PPL’s revenue is attributable to broadcasting. The said numbers do not posit the effectiveness of voluntary or collective licensing, and statutory licensing has the potential to enhance compliance and increase revenues from licensing.
The compulsory licensing scheme for digital streaming in the United States is working very well, and has enabled growth of several online streaming services. Music is now easily and comfortably accessible to the general public in the US owing to novel and innovative business models around music delivery. Likewise, a statutory licensing scheme applicable to all forms of broadcasting has the potential to promote business growth and access to music in India as well.
The objective of copyright law is to promote progress of creative endeavour and works of authorship, and authors are at its core. Music is an integral part of the film industry in India, and record labels play only a secondary role in the creative process. Lyricists, music composers and performers are commissioned for film music, and most record labels acquire recorded music only after it is created. Therefore, their role in furthering the ends of copyright law is not as important as that of authors and film producers.
Works created under the copyright regime are meant for enjoyment of the general public, and financial benefit to record labels is merely a side effect in the process of taking music from authors to the public. Works are neither created by their investment, nor is the copyright system dependent on the recorded music companies. With recording becoming cheaper and easier, the role of record labels has now become very limited. They play a role in commercialisation, but share very little or none of the commercial gains with authors. Given the disposition of record labels, their attempt to avoid or dilute the statutory licensing scheme in India must not be given more importance than it deserves.
Statutory licensing has the potential to further the interests of authors and the general public, the most important stakeholders in the copyright system. It will make licensing music easier, transparent and more organised. It is expected to enhance compliance, reduce piracy, promote technological progress and facilitate equitable sharing of proceeds, and will certainly make music more accessible to the public. Owing to the failure of voluntary licensing models, statutory licensing for broadcasting and performance is today the need of the hour.
We will hopefully see the implementation of Section 31D and its extension to internet broadcasting sooner than later.
- Copyright Licensing in Music Distribution, Reproduction, and Public Performance, available at:https://www.everycrsreport.com/reports/RL33631.html, visited on 4th September, 2019.
- Streaming drove 9.7% rise in global recorded-music revenues in 2018, available at: https://musically.com/2019/04/02/streaming-drove-a-9-7-rise-in-global-recorded-music-revenues-in-2018/, visited on 4th September, 2019.
- Tips Industries Limited v. Wynk Music Limited, Notice of Motion (L) No. 197 of 2018 in Commercial Suit IP (L) No. 114 of 2018 and Notice of Motion (L) No. 198 of 2018 in Commercial Suit IP (L) No. 113 of 2018
- IPRS Annual reports, available at https://www.iprs.org/iprs-annual-report/, visited on 4th September, 2019.
- PPL Annual Reports, available at: https://pplindia.org/governance/, visited on 4th September, 2019.