Payola—sometimes referred to as “pay-for-play”—is the undisclosed payment, or acceptance of payment, in cash or in kind, for promotion of a song, album, or artist. Some form of pay-for-play has existed in the music industry since the 19th century. Most prominently, the term has been used to refer to the practice of record labels paying radio DJs to play certain songs in order to boost their popularity and sales. Since the middle of the 20th century, the FCC has regulated this behavior—ostensibly because of its propensity to harm consumers and competition—by requiring that broadcasters disclose such payments.
As streaming music platforms continue to siphon off listeners from analog radio, a new form of payola has emerged. In this new streaming payola, record labels, artists, and managers simply shift their payments from radio to streaming music platforms like Spotify, YouTube, TikTok, and Instagram. Instead of going to DJs, payments go to playlisters or to influencers who can help promote a song by directing audiences toward it. Because online platforms do not fall under the FCC’s jurisdiction, streaming pay-for-play is not currently regulated at the federal level, although some of it may be subject to state advertising disclosure laws.
In this Article, we describe the history and regulation of traditional forms of pay-for-play, and explain how streaming practices differ. Our account is based, in substantive part, on a novel series of qualitative interviews with music industry professionals. Our analysis finds the normative case for regulating streaming payola lacking: contrary to conventional wisdom, we show that streaming pay-for-play, whether disclosed or not, likely causes little to no harm to consumers, and it may even help independent artists gain access to a broader audience. Given this state of affairs, regulators should proceed with caution to preserve the potential advantages afforded by streaming payola and to avoid further exacerbating extant inequalities in the music industry.
The conventional wisdom is that property rules induce more (and more efficient) contracting, and that when faced with rigid property rules, intellectual property owners will contract into more flexible liability rules. A series of recent, private copyright deals show some intellectual property owners doing just the opposite: faced with statutory liability rules, they are contracting for more protection than that dictated by law, something this Article calls “super-statutory contracting”—either by opting for a stronger, more tailored liability rule, or by contracting into property rule protection. Through a series of deal analyses, this Article explores this counterintuitive phenomenon, and updates seminal thinking on property entitlements and private ordering in the intellectual property context.
While law and economics scholars have long grappled with the question of whether property rules or liability rules are preferable, and when, they have traditionally ignored a key lever: “perceived control,” or a rights holder’s impression of their ability to grant or withhold permission to use their work, and/or to name their price for such use. In addition to proposing a recalibration of the relative importance of consolidation, transaction costs, defaults, and damages, this Article identifies and describes perceived control as an essential factor in the licensing enterprise. This has significant implications for legislators and policymakers seeking to better align incentives between licensors and licensees, and for administrators tasked with term and rate setting.
The deterrence of copyright infringement and the evils of piracy have long been an axiomatic focus of both legislators and scholars. The conventional view is that infringement must be curbed and/or punished in order for copyright to fulfill its purported goals of incentivizing creation and ensuring access to works. This Essay proves this view false by demonstrating that some rightsholders don’t merely tolerate, but actually encourage infringement, both explicitly and implicitly, in a variety of different situations and for one common reason: they benefit from it. Rightsholders’ ability to monetize infringement destabilizes long-held but problematic assumptions about both rightsholder preferences, and about copyright’s optimal infringement policy.
Through a series of case studies, this Essay describes the impetuses and normative implications of this counterintuitive—but not so unusual—phenomenon. Recognition of monetized infringement in copyright is interesting not only for its unexpectedness, but also for the broader point that its existence suggests: we have an impoverished descriptive account of why some laws operate the way that they do. This is particularly unsettling in an area like copyright, where advocates are sharply divided along policy lines. This Essay is an important first step toward a positive theory of copyright— one that recognizes the underappreciated role, both positive and negative, that private parties play in policymaking.
For well over a century, legislators, courts, lawyers, and scholars have spent significant time and energy debating the optimal duration of copyright protection. While there is general consensus that copyright’s term is of legal and economic significance, arguments both for and against a lengthy term are often impressionistic. Utilizing music industry sales data not previously available for academic analysis, this article fills an important evidentiary gap in the literature. Using recorded music as a case study, we determine that most copyrighted music earns the majority of its lifetime revenue in the first 5-10 years following its initial release (and in many cases, far sooner than that).
Our analysis suggests at least two results of interest to legislators, lawyers, and scholars alike: First, it contributes to the normative debate around copyright’s incentive-access paradigm by proposing a more efficient conception of copyright’s term for information goods; namely, one that replaces the conventional “life plus” durational standard with one based on the commercial viability of the average work. Second, it demonstrates that advocates’ and legislators’ tendency to focus on atypical works leads to overprotection of the average work, suggesting that copyright’s term is not nearly as significant for copyright owners as conventional wisdom submits.
Regulatory arbitrage—defined as the manipulation of regulatory treatment for the purpose of reducing regulatory costs or increasing statutory earnings—is often seen in heavily regulated industries. An increase in the regulatory nature of copyright, coupled with rapid technological advances and evolving consumer preferences, have led to an unprecedented proliferation of regulatory arbitrage in the area of copyright law. This Article offers a new scholarly account of the phenomenon herein referred to as “copyright arbitrage.”
In some cases, copyright arbitrage may work to expose and/or correct for an extant gap or inefficiency in the regulatory regime. In other cases, copyright arbitrage may contravene one or another of copyright’s foundational goals of incentivizing the creation of, and ensuring access to, copyrightable works. In either case, the existence of copyright arbitrage provides strong support for the classification (and clarification) of copyright as a complex regulatory regime in need of a strong regulatory apparatus.
This Article discusses several options available for identifying and curbing problematic copyright arbitrage. First, courts can take a purposive, substantive approach to interpretations of the Copyright Act. Second, Congress can empower a regulatory agency with rulemaking and enforcement authority. Finally, antitrust law can help to curb the anticompetitive effects of copyright arbitrage resulting from legislative capture.
In music licensing, powerful music publishers have begun—for the first time ever— to withdraw their digital copyrights from the collectives that license those rights, in order to negotiate considerably higher rates in private deals. At the beginning of the year, two of these publishers commanded a private royalty rate nearly twice that of the going collective rate. This result could be seen as a coup for the free market: Constrained by consent decrees and conflicting interests, collectives are simply not able to establish and enforce a true market rate in the new, digital age. This could also be seen as a pathological form of private ordering: Powerful licensors using their considerable market power to impose a supracompetitive rate on a hapless licensee. While there is no way to know what the market rate looks like in a highly regulated industry like music publishing, the anticompetitive effects of these withdrawals may have detrimental consequences for artists, licensees and consumers. In industries such as music licensing, network effects, parallel pricing and tacit collusion can work to eliminate meaningful competition from the marketplace. The resulting lack of competition threatens to stifle innovation in both the affected, and related, industries.
Normally, where a market operates in a workably competitive manner, the remedy for anticompetitive behavior can be found in antitrust law. In music licensing, however, some concerning behaviors, including both parallel pricing and tacit collusion, do not rise to the level of antitrust violations; as such, they cannot be addressed by antitrust law. This is no small irony. At one point, antitrust served as a check on the licensing collectives by establishing consent decrees to govern behavior. Due to a series of acquisitions that have reduced the music publishing industry to a mere three entities, the collectives that are being circumvented by these withdrawals (and whose conduct is governed by consent decrees) now pose less of a competitive concern than do individual publishing companies acting privately, or in concert through tacit collusion. The case of intellectual property rights, which defer competition for creators and inventors for a limited period of time, is particularly challenging for antitrust.
Running contrary to conventional wisdom, this Article posits that regulation—not antitrust—is the optimal means of enabling entry and innovation in the music licensing market. While regulation is conventionally understood to restrict new entry and to interfere with competition, this Article demonstrates that where a market becomes highly concentrated, regulation can actually encourage competition by ensuring access to key inputs at competitive rates. While not without its drawbacks, including an increase in the cost of private action, remedial regulation in music licensing corrects anticompetitive behavior and ensures ongoing access to content and fair payment to artists, while supporting continued innovation in content distribution.
Research on the statutory license for certain types of copyright-protected content has revealed an unlikely symbiosis between uncertainty and efficiency. Contrary to received wisdom, which tells us that in order to increase efficiency, we must increase stability, this Article suggests that uncertainty can actually be used to increase efficiency in the marketplace. In the music industry, the battle over terrestrial performance rights—that is, the right of a copyright holder to collect royalties for plays of a sound recording on terrestrial radio—has raged for decades. In June 2012, in a deal that circumvented the statutory license for sound recordings for the first time ever, broadcasting giant Clear Channel granted an elusive terrestrial performance right to a small, independent record label named Big Machine and agreed to pay royalties where no such legal obligation exists. This result not only improves upon many of the statutory license’s inefficiencies but is also the opposite of what we would expect given both the tumultuous history surrounding the rights at issue and the respective parties’ bargaining positions. It suggests an underexplored mechanism at play: uncertainty. Using the statutory license for sound recordings and the Clear Channel–Big Machine deal to motivate the analysis, this Article argues that bounded uncertainty—such as uncertainty about the future legal status of terrestrial performance rights and uncertainty about future digital business models—converts a statutory license into a “penalty default license.” Just as penalty default rules encourage more efficient information exchange between asymmetrical parties, penalty default licenses encourage more efficient licensing among otherwise divergent parties by motivating them to circumvent an inefficient statutory license in favor of private ordering. While not without its drawbacks, which previous work identified and ameliorated, private ordering improves upon the statutory approach, resulting in greater efficiency not only for the parties involved but for society overall. Recognition of the role that uncertainty plays in converting an inefficient statutory license into a penalty default license that improves market efficiency while mitigating inequality has implications beyond the statutory licensing context. It suggests a revision in the way we view the relationship between uncertainty and efficiency. Specifically, it shows that when coupled with a penalty default, uncertainty can bring greater efficiency to the marketplace by encouraging private ordering—with its tailored terms and responsiveness to rapid legal and technological change—while mitigating concerns about inequality and gamesmanship.
The government is not the only player in copyright reform, and perhaps not even the most important. Left to free market negotiation, risk averse licensors and licensees are contracting around the statutory license for certain types of copyright-protected content, and achieving greater efficiency via private ordering. This emerging phenomenon, herein termed “private copyright reform,” presents both adverse selection and distributive justice concerns: first, circumvention of the statutory license goes against legislative intent by allowing for the reduction, and even elimination, of statutorily mandated royalties owed to non-parties. In addition, when presented without full term disclosure, privately determined royalty rates can lead to industrial and statutory adoption of inaccurate “market” valuations. Finally, private copyright reform can exacerbate market inequalities by leaving smaller, less powerful parties with a weaker, less effective statutory regime. These concerns could be addressed by comprehensive copyright reform, an ambitious and lengthy process at best. The concerns might also be eliminated by making compliance with the statutory license mandatory, thereby eliminating private copyright reform as an option. Recognizing the efficiency-enhancing value of private copyright reform, however, this Article leaves the option to circumvent in place, and instead suggests two modest statutory amendments to alleviate the adverse selection and distributive justice concerns presented. Private copyright reform also challenges traditional intellectual property doctrine; specifically, it questions the efficiency of statutory licenses and collective rights organizations, while also raising questions of fairness around the ability of private parties to make law. While resolution of these doctrinal questions is outside the scope of this Article, the recent proliferation of private copyright reform suggests they are ripe for reconsidera
Patent law and copyright law are widely understood to diverge in how they approach prior art, the universe of information that already existed before a particular innovation’s development. For patents, prior art is paramount. An invention can’t be patented unless it is both novel and nonobvious even after considering all the earlier inventions that paved the way. But for copyrights, prior art is supposed to be virtually irrelevant. Black-letter copyright doctrine doesn’t care if a creative work happens to resemble its predecessors, only that it isn’t copied from them. In principle, then, outside of the narrow question of whether someone might have drawn from a preexisting third-party source, copyright-infringement disputes would seem to have little doctrinal use for prior art.
But that principle turns out not to describe what’s actually going on in copyright litigation today. This Article shows that courts have begun emphasizing the concept of prior art not just when dealing with the inventors that inhabit patent law’s domain, but even with the authors that inhabit copyright’s. Except it turns out that many judges today are in fact using that precise notion in copyright infringement cases, often subtly but sometimes downright explicitly. Perhaps this usage is flying under the radar because unlike in patent law, where prior art is used to determine the binary question of protectability, these copyright cases are deploying the concept toward the more open-ended question of a protectable work’s scope. For example, a second comer might be allowed to copy a short fragment of a work if similar fragments have appeared previously in the genre; copying a similarly short fragment that is thoroughly unique, by contrast, might be infringing. Indeed, one district court ruling from only days ago went so far as to hold that an expert report that failed to consider the works’ prior art was legally irrelevant.
As online shopping platforms like Amazon have grown in popularity and market share, so too have the sellers’ ecosystems specific to those platforms. Amazon’s Brand Registry program, for example, is touted as helping sellers protect themselves against unauthorized use of their names. Participation in the Brand Registry gives sellers on Amazon access to advertising solutions including something known as the Early Reviewer Program, which helps sellers get initial reviews on new products. As of 2017, participation in Amazon’s Brand Registry program requires a seller to have a trademark registered in the U.S. Ostensibly, this requirement was added in an effort to mitigate growing concerns on the platform of counterfeit, fake, and misdescriptive products. In practice, it has led to an explosion of new trademark applications that threaten to overwhelm an already under-resourced USPTO.
All of this is interesting because it inarguably divorces these marks from the very purposes of trademark law; namely, from the ability for a mark to serve as a source identifier. These brands are arguably relying on the strength of Amazon’s brand, not their own. Also interesting is the interplay of private v. public regulation in this space. Amazon’s private decision to require U.S. trademark registration in order to participate in its coveted Brand Registry program has effectively (albeit presumably unintentionally) subverted the purpose of a public body of law, trademark. Instead, positive reviews, together with fulfillment and delivery by Amazon, are doing the work of trademark here; Is Amazon inducing (inadvertently or otherwise) false trademark registrations? Do these (mostly Chinese) companies even need trademarks at all, or could Amazon just regulate them via private ordering?
In a two-sided market, buyers and sellers interact through an intermediary or platform, and each party is “paid” (or receives goods/services) based upon that intermediary’s success with the other party. The classic example is a credit card company, like Visa. Consumers are only interested in Visa if the sellers they hope to obtain goods and services from accept the card. Similarly, sellers are only interested in contracting with Visa if the company facilitates the sell of their goods and services to lots of prospective buyers. The focus of most research in this area is on the actions and choices of the intermediary, where it cares about different things than the respective parties.
But what about a two-sided market in which one or more of the parties—or even the intermediary itself—is an oligopolist, or a monopolist? What if there is more than one such intermediary? What does this look like? How does it work? The copyright industries offer a unique opportunity to study this phenomenon. In music streaming, for example, we have music buyers (listeners) on one side, and music sellers (labels and publishers) on the other. We also have several, distinct intermediaries: a platform like Spotify, a performing rights organization like ASCAP, and a sound recording collective rights organization like SoundExchange. In the U.S., all of these intermediaries arguably operate in oligopolistic markets. The same can be said of U.S. music sellers, the music publishers and record labels. This project will consider the impact of “nestled oligopolies” or “two-sided oligopolies” on the respective parties and market(s), and will ask whether, and how, regulation should respond, and what impact divergent regulatory choices—such as those made by the EU versus those made by the US—have/have had.
Private ordering between licensors and licensees in the content industries can improve efficiency and reduce transactions costs. It can also allow content owners to monetize uses of their work that might otherwise qualify as fair use under current copyright laws. This project explores various case studies of this phenomenon, and considers the normative implications.