Tag: music-industry

The AI Industry Wants Congress to Create the Next 100-Year Radio Loophole

“Formal property’s contribution to mankind is not the protection of ownership… Property’s real breakthrough is that it radically improved the flow of communications about assets and their potential.”

Hernando de Soto, The Mystery of Capital.

Musicians and other creators are unfortunately familiar with many efforts by big business to extract the economic value of their authorship through expansive free-riding copyright loopholes that pretend property rights don’t exist. The current AI crisis did not originate with Big Tech—they learned it from Big Radio.  I distinctly recall having lunch with a Big Tech Washington lobbyist for XM radio (pre-merger) who had just found out that broadcast radio didn’t pay sound recording performances and wanted that same deal for satellite radio.  I had to put the quietus on that pronto.  And they didn’t even know how close they came to disaster. Sheesh.

In case you were wondering, Congress modernized copyright law in 1995 through the Digital Performance Right in Sound Recordings Act.  The 1995 law created the statutory framework that launched licensed webcasting while preserving the archaic terrestrial radio performance loophole—preserved due to lobbying by Big Radio.

For decades, terrestrial AM/FM broadcasters have relied on a statutory copyright exception that allows them to broadcast sound recordings without compensating the featured artists, session musicians, and backup singers whose performances attract listeners, or the record companies who bear the substantial costs of discovering, recording, marketing, and promoting those works. Despite years of bipartisan efforts to end that free ride through legislation like the American Music Fairness Act (AMFA) and its predecessor bills, broadcasters have vigorously defended the exemption with overwhelming money and utilization of the very broadcast license they abuse to feather their nests.  We have put excellent witnesses in front of Congress only to be outspent by smarmy swamp creatures from the National Association of Broadcasters.

AI disputes echo that familiar pattern. In the end, it all comes down to vast wealth accumulated through safe harbors of one kind or another.  Instead of relying on a terrestrial performance exemption, AI companies advance absurd interpretations of fair use and text-and-data-mining doctrines to justify the uncompensated use of stolen works for commercial model training “because China.” They use influence peddlers like White House AI Viceroy David Sacks to try to sneak retroactive safe harbors into the law through Congress in the form of groundless federal preemption of state and local regulation or executive orders that are clearly bought and paid for under the guise of “data center factories” which are not factories at all.   Although the legal theories differ between AI and broadcasting, the economic consequence is remarkably similar: sweeping commercial enterprises seek to build profitable businesses by lobbying or litigating (two sides of the same King’s shilling) to expand exceptions to the exclusive rights Congress granted creators, while forcing artists, musicians, writers, journalists, film makers and photographers to absorb the resulting loss in value.

That concern is no longer theoretical. In a recent Bloomberg podcast, SoundExchange President and CEO Michael Huppe—whose organization distributes more than $1 billion annually in digital performance royalties derived from rights created by that market-making 1995 legislation—described AI as “something that has a lot of danger, but also a lot of potential.” But he cautioned that “we need to make sure that human creators are protected” and that “there need to be guardrails so that [AI] doesn’t steamroll over the whole creative industry.” I couldn’t agree more. Rather than treating property rights as obstacles to AI, Congress should remember Hernando de Soto’s lesson that clearly defined ownership creates wealth—a principle it proved when licensing sound recordings gave birth to the webcasting industry largely thanks to SoundExchange and the infrastructure it brings to the table.

Huppe’s concerns are rooted in measurable economics rather than speculation. Streaming now accounts for approximately 85% of U.S. recorded music revenue, and streaming services distribute a finite, shared royalty pool among eligible recordings. Huppe noted that some services report receiving roughly 75,000 new recordings every day, with reports suggesting that more than 80% are AI-generated.

Whether those estimates ultimately prove higher or lower, the underlying economic principle is unavoidable: every AI-generated recording entering the marketplace competes for listener attention and, if streamed, competes for a share of the same finite, shared royalty pool. Huppe also warned that AI facilitates streaming fraud, allowing bad actors to generate AI recordings, deploy bots to inflate plays, and “siphon away payment from the pipeline that would otherwise go to real artists and real record labels.” His conclusion was unequivocal: “It’s fraud, basically. Straight-up fraud.”

Moreover, generative AI takes legitimate recorded performances to create competing works substituting for the originals themselves. This economic effect echoes Judge Vince Chhabria’s observations in the Kadrey v. Meta books litigation, where he suggested that flooding markets with AI-generated works competing against originals could constitute the type of market harm that would block a fair use defense to copyright infringement.

The explosion of AI-generated music that Mike Huppe cites therefore provides strong evidence of repeatable and measurable market harm identified by Judge Chhabria. Every AI-generated stream competes for listener attention while simultaneously reducing each human artist’s share of a finite, shared royalty pool. Unlike speculative claims of future injury, this dilution can be observed, quantified, and modeled using actual streaming and royalty distributions.

The economics become even more troubling when combined with large-scale scraping. As we have seen litigated in the cases against Udio, Anthropic and Meta (and I think will continue to see proven through all of the AI models including Suno),  AI has trained on enormous quantities of illegally acquired works without obtaining licenses or compensating the creators whose recordings, performances, writings, images, and other expressive works supplied the raw material that makes those models commercially valuable.  Sound familiar?

The same creative ecosystem that furnished the training corpus is then required to compete against a cascading and endless supply of AI-generated outputs while receiving no payment for either the training use or the resulting competition. Worse yet, because nothing says freedom like getting away with it, AI platforms connected to Google, Facebook and Amazon are so used to ignoring copyrights in their day jobs that they clearly planned to ignore our rights.

In music, the effect is especially stark: the recordings that taught music-generation systems how to produce theoretically commercially appealing songs also become the works displaced by those outputs in the marketplace. Creators are effectively asked to finance their own displacement. They suffer a double economic injury—first, uncompensated exploitation of their works to build commercial AI systems, and second, measurable erosion of their share of a finite, shared royalty pool as AI-generated recordings compete for the same listeners and revenues that streamers like Spotify seem unable to stop from invading the ecosystem.

Because of the insane pool allocation formula used for streaming mechanical royalties on interactive services like Spotify, Amazon, Apple and Deezer, songwriters are also subject to the same kind of dilution as artists.  Hopefully the Copyright Royalty Judges will address this new humiliation in the current statutory rate proceeding and clearly state that AI works are not eligible for the statutory license under Section 115.

This measurable dilution also helps illustrate the broader market-flooding concern identified by Judge Chhabria. If AI-generated outputs systematically occupy the same commercial markets as human-created works, reducing revenues through sheer volume rather than direct substitution alone, then streaming provides one of the first empirical laboratories for proving market harm for “the effect of the use upon the potential market for or value of the copyrighted work.”  Because streaming royalties are transparent, pooled, and data-driven, music offers unusually strong evidence that AI-generated competition can inflict repeatable, measurable, and scalable economic injury. If courts follow Judge Chhabria in recognizing this analysis, the same analytical framework could extend beyond music to books, journalism, visual art, film, software, and other creative industries in which AI-generated outputs compete for the same audiences, revenues, and licensing opportunities as human creators.

Against that backdrop, the American Music Fairness Act is no longer simply a current solution to a decades-old copyright reform proposal. If AI companies are correct that generative AI will place unprecedented pressure on the economics of human creativity, then Congress should strengthen—not further weaken—all of the economic foundations supporting human creators. AMFA would finally require terrestrial broadcasters to compensate featured artists, session musicians, and vocalists for the use of their sound recordings, just as streaming and satellite radio already do. It would also unlock reciprocal foreign performance royalties that American performers currently forfeit because the United States remains an international outlier. 

At a moment when AI is intensifying the struggle for creative labor to survive even while platforms seek broad legal exceptions for uncompensated training through lobbying and executive orders, eliminating one of copyright law’s oldest uncompensated uses would send an important signal: the future of artificial intelligence should not be financed by the continued erosion of the livelihoods of human creators.

The AI industry’s habit of predicting existential harm while aggressively commercializing the same technology presents a profound ethical contradiction that Professor Cal Newport calls “doom trolling” in a recent New York Times post.  This leads to a conclusion that AI companies cannot credibly claim their technology poses existential risks while continuing to accelerate its commercialization without meaningful restraint.

Newport gives this example reminiscent of my personal favorite, the exploding gas tank in Ford Pintos (not to pick on Ford):

Imagine if the Ford Motor Company put out a report saying that it feared its popular F-150 trucks might soon start bursting into flames, but that there was nothing the company could do about it because automotive technology was too inevitable and important to slow down. You’re probably struggling to picture this scenario because no reasonable consumer product company would ever act like this. 

The A.I. companies could start behaving the same way. To do so would require that they stop treating A.I. like some inevitable force that they’re struggling to steward. It’s not. It’s a collection of specific tools that these companies are choosing to design and sell according to specific business plans. Accordingly, they need to talk about their offerings like any other consumer product. This means explaining clearly whom these products are for, justifying their benefits and, critically, taking full responsibility for any harm they might cause. Just because A.I. currently enjoys a high-tech sheen doesn’t make it exceptional with respect to common-sense safety standards.

If these A.I. companies insist on continuing to pretend that they’re merely stoic observers of an unavoidable dystopian future, then perhaps it’s time to force the issue. As consumers, we can refuse to play the doom-trolling game. Next time Anthropic releases a dire report, or Sam Altman’s voice cracks as he imagines the disruption that OpenAI is unleashing, we can pivot back to the pragmatic: “OK, but what benefits am I getting by spending $1,000 a month on tokens?” If they continue to ratchet up the doom, then perhaps it’s time to transform dread into ridicule: The earnest pseudoscience of Anthropic’s white papers already borders on satire. The current zeitgeist surrounding A.I. encourages a fretful submission to these tech leaders, but this could rapidly change.

The AI industry cannot have it both ways. It cannot warn that generative AI will fundamentally transform—or even eliminate—millions of creative jobs while simultaneously insisting that the law should expand uncompensated access to the very works that make those systems possible. If AI companies genuinely believe their own predictions, then the appropriate public policy response is not to weaken copyright, broaden fair use, or create new exceptions for commercial training. It is to reinforce every remaining economic support for human creativity. 

The evidence emerging from music streaming already demonstrates why. AI-generated works are not merely theoretical substitutes; they compete for attention, streams, and revenue, measurably reducing each creator’s share of a finite, shared royalty pool. That provides some of the clearest real-world evidence yet of repeatable market harm from generative AI at commercial scale. Congress should take note. The question is no longer whether creators deserve compensation for their work. It is whether the United States will choose to finance the AI economy by systematically eroding the economic incentives that have sustained human creativity for generations—or whether it will insist that technological progress, like every other successful industry before it, pays its own way.

Perhaps the greatest lesson of the American Music Fairness Act is not about radio at all. It is about refusing to repeat yesterday’s policy mistakes in tomorrow’s technology. As Mike Huppe observed on Bloomberg, Congress should not be creating new copyright exceptions while it is still trying to fix old ones. That warning applies with even greater force to artificial intelligence. If policymakers know that generative AI is likely to place extraordinary pressure on the economics of human creativity—as many AI companies themselves readily acknowledge—then the answer cannot be to expand uncompensated uses of creative works in the name of innovation and unintended consequences be damned.

The webcasting revolution showed what Hernando de Soto long argued: respecting property rights doesn’t kill innovation—it gives innovators the legal foundation to build sustainable markets. AMFA is a cautionary tale: a narrow copyright exception adopted decades ago has deprived generations of American performers of compensation and remains difficult to unwind. Congress should learn from that history, not repeat it. The AI economy should be built by paying for the creative works that make it possible and respecting the rights of all creators—not by creating another exception that future generations will spend decades trying to reverse and an entrenched bureaucracy of the richest corporations in commercial history will oppose with all the resources they can muster.

Careful What You Wish For: Consent Decrees, Compulsory Licenses and the Right to Say No

[This post first appeared on Artist Rights Institute’s Artist Rights Watch blog]

I remember you, you’re the one who made my dreams come true…
Written by Johnny Mercer

Careful What You Wish For

Remember the sales pitch for how wonderful the Music Modernization Act was going to be? An even broader compulsory mechanical license for songwriters combined with yet another safe harbor for music users (with new and improved retroactivity) was going to solve all our problems. A solution for unlicensed songs, black box, unpaid royalties, a stop for “inefficient” litigation. The new musical works database would succeed where all other efforts had failed, not to worry and now back to sleep. Good thing it didn’t make the already complex music licensing regime even more convoluted.

There is, of course, a very simple way to clean up at least some complexities in the music licensing system. Digital services don’t use a track if they don’t clear the publishing. Radio stations certainly can block tracks when they blacklist a particular song. That would, of course, require not just accepting responsibility for licensing but also for doing an effective job of licensing so the platform did not get sued. The whole point of the civil law system is to encourage honest behavior and to empower individuals to unleash hell. Don’t mistake “holding up” a license for standing up and fighting back. Those noisy smallfolk may get in the way but that doesn’t mean they’re wrong.

Who Made Them Special?

It doesn’t seem like it’s working out quite as advertised. We were told before the MMA that you just can’t ask the digital services to actually confirm they have the rights to sell their products. Why do we ask it of other commercial actors in complex rights situations but not digital services? We ask grocers, car dealers, doctors, bankers or even lawyers to know who they are dealing with and make sure they are doing so lawfully. As Justice Thomas wrote in a recent Supreme Court case, [i]n the platforms’ world, they are fully responsible for their websites when it results in constitutional protections, but the moment that responsibility could lead to liability, they can disclaim any obligations and enjoy greater protections from suit than nearly any other industry.”

If a car dealer sold a hot Ford or Ferrari, could the dealer tell the prosecutors that compliance was just too hard? If a pharmacy sold counterfeit insulin could they ask for a safe harbor? If a vaccine manufacturer ….no wait.

But no, we were told that digital services were special and that we needed to give them an even broader compulsory license and an even broader safe harbor than Section 230, DMCA and the natural safe harbor from being the richest companies in commercial history. (And there’s a connection between safe harbors and them being rich while we get a royalty that starts 3 or 5 decimal places to the right.).

After the Spotify bundling debacle, all of a sudden a broader and deeper compulsory license doesn’t look so hot. Plus it now appears that Spotify is to be singled out in the coming Phonorecords V proceeding which will be starting in a matter of months. That may not be a dog whistle to the lawyers, but it sure sounds like the meter going down. This may be a test of the antitrust exemption for what sure seems to me to be a concerted refusal to deal, but then I’m just a country lawyer and I’m not as smart as the city fellers. (All the more reason for songwriters and labels to make another separate peace on physical like Phonorecords IV and do it quickly.)

Abandoning The Right to Say No

In other words, it looks like it’s going to be making something extremely complicated with side issues galore when it really comes down to a simple issue: The right to say no. Unfortunately, the compulsory license and the ASCAP and BMI antitrust consent decrees exist for a single reason which is to take away that right to say no. But that was what they wanted and now they’ve got it.

How does the other side perceive their cherished ability to hide behind the government’s boot on our throats? A “friend of the court” brief in the current appeal of the BMI v. NACPA rate court case under the BMI antitrust consent decree gives us some insight. These briefs (also called “amicus briefs”) are sometimes filed in court cases, especially appellate cases, by entities who are not parties to the litigation but who may be affected by the outcome and who are trying to influence the court’s decision. The briefs are often filed by trade associations, giving the members of those associations plausible deniability as to their own intentions.

The “friends” or “amici” often want to point out to the members of the court potential unintended consequences or broader effects of a pending judicial decision resolving the particular controversy. It is common for groups of amici to band together, thus giving the court the benefit of the thinking of companies with (or representing) an interest in how the court rules. These briefs also give some insight into what the other side is thinking.

The joint amicus brief that caught my eye in the BMI v. NACPA BMI rate court case was a brief filed by a number of amici including the National Association of Broadcasters (NAB) and the Digital Media Association (DiMA). That alliance caught my eye. Three guesses why.

The Satanic Cult known as the MIC Coalition

The core logical flaw of the argument by these amici is that they omit the solution of saying no. They want the court to believe that using music is all too complicated. For example:

The [BMI rate court’s] decision here is wrong. It set a rate for BMI using as “benchmarks” rates obtained by two very different performing rights organizations, SESAC and GMR, in very different economic circumstances than pertain to the marketplace governing BMI and ASCAP licensing. 

What’s the principal difference between rates paid to BMI (and ASCAP) and rates paid to SESAC and GMR? The biggest difference identified by the trade association “friends” representing companies that together have market capitalizations in the $3 trillion range is that songwriters represented by SESAC and GMR are free to negotiate. And we can’t have that, now, can we? Here’s the explanation from the “friends”:

BMI and ASCAP, which together control over 90% of all public performance rights in musical works…are subject to consent decrees intended to protect entities like amici from the anticompetitive abuses that come with the aggregation of vast numbers of copyrights in the hands of a single licensing entity….As amici have experienced firsthand [oh, my, first hand? Poor babies!], SESAC and GMR are not subject to the same constraints on anticompetitive conduct as BMI and ASCAP, and amici enjoy none of the consent decrees’ protections when they negotiate—as they must—with SESAC and GMR.

Although SESAC and GMR have smaller repertories than BMI and ASCAP do (partially because they are invitation-only organizations, unlike BMI and ASCAP), each nonetheless controls the rights to multiple thousands of musical compositions, including works of writers as iconic as those who populate the ranks of BMI and ASCAP (such as Adele and Bob Dylan who are licensed by SESAC, and Bruce Springsteen and John Lennon who are licensed by GMR).  

Friends Don’t Let Friends Change One-Way Streets

So what the friends argue is that the BMI rate court should not have taken into account the rates negotiated by SESAC and GMR at arms length when setting the consent decree rate for BMI. In other words, when setting what is effectively a government-mandated rate, the BMI rate court should not have considered a willing buyer/willing seller negotiated rate because that was mixing apples and rotten apples. Which those poor babies know “first hand”–they, too, have been bullied by those “iconic” writers who fancy themselves worth more to music users than the other 90%. Oh, the arrogance!

And here is the fallacious conclusion of the false choice:

Industry reality thus makes it a necessity for amici to obtain blanket licenses from SESAC and GMR as well as BMI and ASCAP. This is particularly the case because music rights are often fragmented, with multiple PROs controlling interests in a single song. Adding to the problem, composition ownership information is opaque and inaccurate. Amici thus face, on the one hand, the threat of crippling copyright infringement liability if they do not obtain SESAC and GMR licenses and, on the other, supra-competitive prices that SESAC and GMR invariably charge when they do. As a result, they find themselves wedged between a rock and a hard place. 

This is the essence of the false choice that keeps coming up in these relationships. The underlying fallacy is that in order to use the music, the richest companies in commercial history must negotiate with SESAC and GMR (especially GMR if you ask me) and those pesky, albeit iconic, songwriters who allow these PROs to represent them. SESAC and GMR are not compelled by the government to bend the knee. If songwriters are allowed to keep going down that road outside the government’s boot, God knows where that might end up. They might get it in their heads that they’re actually worth something. We can’t have that, now can we?

And worse yet, if the government’s rate courts start using these freely negotiated terms to set compulsory rates, the one way street might change direction. And we can’t have that, either. But isn’t the essence of a compulsory license that the government is supposed to approximate what a willing buyer would pay a willing seller for the licensed rights? So aren’t the SESAC and GMR rates for the same use exactly the kind of benchmark the government should use when setting rates for everyone else?

Saying the Quiet Part Out Loud

This drives them wild, of course. They actually say the quiet part out loud:

[T]he impact of [SESAC and GMR’s] supra-competitive [free market] licensing practices on licensees has been cabined before the decision below, in large part because (a) the actual prices, while inflated, are not so high as to be ruinous to licensees given the comparatively smaller repertories involved; and (b) no rate court until now had relied on SESAC or GMR rates in setting rates for the much larger BMI and ASCAP repertories. In relying on SESAC and GMR’s rates, the district court turned a long-standing consent decree designed to protect music users on its head. The BMI consent decree was designed to stop BMI, a music-rights aggregator with monopoly power, from abusing that power. But [BMI Rate Court] Judge Stanton’s decision effectively endorsed those abuses by setting a rate that BMI could never get in a competitive marketplace, even though that is the governing standard for BMI (and ASCAP) rate-setting cases. 

And there’s the false choice again. If you can’t afford Le Bernadin, no one is forcing you to dine there. All these music users can just say no. They don’t want to. What they want is to get the music on the cheap. And, frankly, take a lazy approach to licensing. Yet the amici acknowledge that the court is bound to use a rate from a competitive marketplace as the “governing standard” in setting consent decree rates.

Here’s the rub. Until SESAC and especially GMR came along there effectively had never been a competitive performance royalty rate so the “governing standard” was essentially iterative and therefore meaningless. All these companies represented by amici got the government discount in rate court because of their lobbying power. As Senator John Kennedy told Mark Zuckerberg, tech companies are like countries and they get whatever they want in Washington–the primary reason artists have never been paid for broadcast radio performances of their recordings. And a recession is when Google lays off 25 Members of Congress.

While these music users are supposed to negotiate before going to rate court, those negotiations are just inconveniences so they could get to rate court and start running up legal fees. And shocker–when they have to negotiate with GMR and cannot go to rate court, they end up paying more. Just FYI, there’s also gambling in Rick’s American Bar.

The False Choices

So false choice number 1: The users don’t have to use music they can’t afford. False choice number 2: When songwriters cannot step away from the table and refuse to license, it’s the government that imposes a lower rate particularly when staying in rate court costs a fortune.

The government doesn’t protect the user from anticompetitive behavior, it protects the user from a competitive marketplace. That insulated rate is brought about through lobbying the executive branch and ultimately the Department of Justice. My bet is that this is the only reason–the only reason–that the ASCAP and BMI consent decrees are the longest running consent decrees in US history and probably world history.

Remember when the DOJ was reviewing all antitrust consent decrees in 2018 and terminated over 1000? But not for those dangerous anti-competitive songwriters. Yes, sir, as soon as that writer room door closes they get right down to colluding because that is the essence of songwriting.

For some reason–I wonder why–the DOJ decided that songwriters needed to be right up there with Otis Elevator and Microsoft and continued the bloodsucking consent decree cottage industry that has sent generations of children through prep school, college and law school. So here we are again arguing over the false choices. Hopefully, we may be entering a new era of enlightened thinking where publishers are willing to stand up and be counted to get the government’s boot off their throats.