By Marco DiLeonardo
Marco DiLeonardo is a sophomore at the University of Pennsylvania studying International Relations.
The creation of the Internet has revolutionized the music industry. Transitioning from CDs and records to an entirely digital medium, music has become so much more accessible for millions of people around the world in a short time period. However, accessibility comes with many complications in the already intricate and unpredictable realm of copyright. Traditional copyright law is historically not suited to handle this emerging technology and is currently undergoing major changes, and the business models of Apple, Pandora, Spotify, Grooveshark, and SoundCloud are seeing a series of legal consequences.
In order for Apple to gather music from different artists to sell on the iTunes, it must acquire the permission of whichever label the artist is apart of. The current arrangement is centered on the agreement that the iTunes Store essentially functions as a retail outlet that sells CDs. Apple purchases the rights to sell songs of a certain label and then transfers a portion of the returns back to the music labels. Apple also possesses a streaming feature. However, iTunes Radio functions differently than the typical iTunes song purchase. Rather than a one-time royalty per purchase, in its first year of operation, 2013, Apple paid the label thirteen cents each time a song is played, and now pays the label fourteen cents. Furthermore, the advertisement revenue is distributed in an agreed upon formula. In the first year of operation, Apple paid fifteen percent of the total, and later increased it to nineteen. Royalties are not taken into account if the user already purchased the file or if the listener skips the song before the twenty second mark. 
Much like iTunes Radio, Pandora functions under a similar format. First, it must acquire the rights from the labels and then charges a per play fee. As opposed to Apple, Pandora does not negotiate with labels to add their songs into their content, but utilizes the federal copyright law, which dictates a compulsory licensing provision. This statute allows the company to play any song, with few restrictions, at a federal royalty rate.  However, Pandora has encountered issues using this policy, by not paying any royalties from songs produced before 1972. Only state law protects those. As a result, Pandora is facing a lawsuit from the labels that argue for commissions. In short, the result of Capitol Records, LLC v. Pandora Media, Inc. will cause a significant impact on Pandora’s business platform. 
In contrast with Pandora, but similar to Apple, Spotify does negotiate with individual labels to acquire the rights to play their songs. Like Pandora, the music service pays royalties to labels for each stream of a song, but Spotify’s rate is radically less than its competitors: about half a cent per play. Contracts also differ among artists as well as labels.
A discussion of Grooveshark reveals the most important copyright debate. According to Grooveshark’s tactical stance, the Digital Millennium Copyright Act (DMCA) creates an incentive to build a business based on infringement. The company’s fundamental operations are protected by the “safe harbor provisions” of the DMCA which transfers liability of copyright infringement from the company, Grooveshark, to the consumer, the offender in this case. The company does not pay any artist royalties and has no licenses or contracts with labels. As a result, once a lawsuit arises over copyright infringement, the company pleads ignorance. Grooveshark then removes it from its site but subsequently allows the same content to be offered in the future.  Inevitably, Grooveshark is in constant legal battles with every major label, and UMG Recording Inc v. Escape Media Group Inc., may signify the end of Grooveshark. The strategy of claiming ignorance to the infringement is being contested by troves of evidence that directly indicate that the service and its employees were well aware of the illegal uploading of copyrighted material. In fact, CEO Samuel Tarantino discovered a specific letter to the company’s employees which details: “Please share as much music as possible from outside the office… Download as many MP3’s as possible, and add them to the folders you’re sharing on Grooveshark.”  In short, there is a very high probability that the destruction of Grooveshark is near due to its massive copyright infringement.
SoundCloud faces a similar situation, but not to the extent of Grooveshark. The focal point in this business model is SoundCloud’s foundation of remixing. Most users download copyrighted works, alter, mix, and cut the songs, and upload them once again for download by others on the website, citing fair use to avoid copyright infringement. Until recently, SoundCloud has had a policy in their terms and conditions which “grants a worldwide, non-exclusive, royalty-free, fully paid up license to other users.”  In other words, the service is allowed to operate and pay nothing due to a disclaimer. However, as UMG Recording Inc v. Escape Media Group Inc. has neared a decision, SoundCloud has begun to sign licensing contracts with labels.  Under further pressure from the music industry, it has introduced advertisements to certain songs. With these new agreements, the music service will adopt a policy akin to that of Spotify, but with a restricted platform including only certain artists and songs.
In conclusion, Apple and other music streaming companies struggle to provide affordable services with copyright laws grounded in an era without the Internet. With heavy pressure from record labels and their legal teams, music streaming services are obliged to cooperate with outdated federal and state statutes. When will lawmakers realize the urgent need to reform copyright law? As more and more lawsuits are filed, only time will tell.
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Photo Credit: Flickr User AdamChandler86
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