Interesting and the opportunities are so great because we are finding new audiences and new ways of delivering music. Artists are finding new ways to connect with fans. All of that is great for music. We want to bring alex beyers of politico to this conversation. Alex cary, it is 2015. It has never been easier for someone to record music at home or maybe at a small studio. To use thirdparty services to get uploaded to spotify or a platform like that. Do we still need record labels at this point . Will we, in 10 years, as technology continues to develop . Cary when the internet first started becoming the new development, people thought that the era of labels might be over. Why would you need them, when, in fact, artists can go directly to their fans . I think the conclusion now is that labels are more important than ever, because everybody who wants to be an artist, actually has the opportunity to be online and put their work out there and try to find an audience. As a result, there is more clutter than ever. You need somebody who is going to be a taste maker, who is going to put their financial and Human Resources behind a particular artist, saying, this person is worth hearing. So i think labels are actually , are important than ever, and they have certainly been playing a very significant role in the building of artists careers, still. The fact that you still have the opportunity for artists to do it themselves is great for music. That way, artists can choose what they want to do. Many artists like getting into the business and getting into the fan relationships and management and touring and so on and so forth but there are other artists who really just want to focus on perfecting their craft and making music and for them having the services of a label makes all the difference. Alex sure. You talked about one of the roles of the riaa is lobbying on capitol hill. Weve seen that the music licensing marketplace has been a big topic of discussion over the last few years, especially, at the House Judiciary Committee where i think there have been like 20 hearings on the subject over the last few years. At the same time, we know that it is really tough for congress to do pretty much anything, not to mention something as complicated as music licensing. Do you really think were going to see legislation to change some of the things that you would like to change . That seems like a tall order just looking at the political atmosphere right now. Cary i think it is a tall order. Chairman goodlatte has basically approached this issue in a very systematic way, attempting to gather a lot of information. He has made clear that the industry, itself, has to try and develop a consensus about how music licensing can be reformed and lets face it, the Digital Music services need to be part of any consensus, as well. That is a very tall order and it is going to be very hard to do. But that does not mean it is not worth trying. Peter who are the players in this debate over how we get our music . And who pays for it . Cary we represent record labels and we are the Business Partners of the artists. So, there is that side of the business. We create what are technically called sound recordings. Its basically when you make a copy of the words and music to a song. Then, there are the songwriters and publishers. They write the words and music. So, they have their own separate copyright and entirely separate licensing mechanisms and licensing organizations, so it becomes quite complicated because you are having to license two creative works for one use. By a streaming service or by a Download Service. Then you have the licensing entities, themselves. Ascap and bmi represent the songwriters and publishers, that they have their own views about what the best form of licensing is. Then you have the Digital Music services and they are in very different positions because they often operate under different regulatory regimes. Pandora, for example, is a noninteractive Radio Service, which means that it gets the benefit of a government compulsory license. We are required to make all of our music available to pandora as long as they pay a royalty rate that is set by the government. Then you have satellite radio. , they also get the benefit of that government compulsory license, except that they operate under a different rate standard than pandora does. Then you have spotify or apple music or audio and others. They operate in the marketplace where their services are on demand, they are called an interactive Music Service, so that you can pick what song you want to hear, right now, and it will play that song or that album, but they have to negotiate in the marketplace with Record Companies. So, it is an entirely different licensing mechanism, and then we get over onto the publishing side, it gets even more complicated. I wont bother going into all of that now. It just goes to show that we have a hybrid licensing system where, if you are in your car listening to music, if you listen to it over a. M. f. M. Radio, the artist wont get a cent. If you connect your cell phone to your car stereo and it is on pandora, they will get one rate. If you connect it and it comes over spotify, they will get a higher rate. It is crazy. It is a broken system. And it is way too complicated for a world in which people need to license 20 million tracks at a time instead of one song or one album at a time. That is why it is so difficult for this transition to take place. Peter so if you got to decide how this changed how would it , change . What change would you like to see . Cary we would need a lot of changes is the problem. Then, there are a lot of players involved. First off, we would want to be paid by a. M. f. M. Radio. I think it is remarkable, most people are shocked to learn that in todays day and age, a. M. f. M. Radio pays nothing to artists and record labels when they broadcast the music. They do pay the songwriters and publishers, but they do not pay artists and labels. This is a 16 billion industry where they are earning 16 billion in advertising revenues every year from basically the use of music, and they pay nothing for it. There is no other copyright in work that is discriminated against that way, and there are virtually no other developed countries in the world that discriminate recordings that way. Yet, special exemption in the u. S. Law a unique u. S. Situation. We want to fix that. We would like to fix the below market rates standard that sirius xm enjoys for some reason, they were grandfathered, at a time when they were a startup. That grandfather still exists even though they are making money hand over fist. They ought to be sharing their revenues more fairly with the people who create the music on which their services are based. That needs to be fixed, as well. We really need to do something about making sure that all creators are paid fair market value regardless of the platform that they are on. And that is not the Current Situation right now. We also need to revise the, it is called the mechanical licensing system, it is an odd term, what it is the royalty that is paid for the reproduction and distribution of a copy of a recording. So, when a Record Company licenses a song for a cd, it gets a mechanical license. Well, the law for that was written in 1909. So, you have to send a certified letter by mail, one song at a time, saying, im going to take advantage of this license. When you are licensing 30 million tracks at a time, you are not sending out certified letters, one song at a time by the way, nowadays, there are multiple songwriters and multiple publishers for every one song. We need a blanket licensing system, where you file one piece of paper and you have a license, and then you handle the distribution of money afterwards. Those are just some of the things that we need to do and all of them are challenging. Alex i have heard you talk a lot about regulatory parity with regard to first the broadcasters at zero, sirius xm at the middle level, and then there is obviously pandora that usually stops at least what ive , heard from you guys and Music Industry recently, before we get to the Interactive Services. Would you want to see some type of equilibrium between what the noninteractive guys and the interactive guys have to do . Or should they stay outside of the compulsory system . Cary well, we dont believe in compulsory licenses as a matter of principle. As a matter of practical reality the law is not going to change. We understand that there are efficiencies to having a compulsory license, so we are not asking to change that. It is a little odd that we had a compulsory license for music these are not nuclear warheads. But, we understand that that is going to continue. But, certainly, we do not want the compulsory license extended beyond that which already exists. The marketplace deals work a lot better for the industry. The rate that we get from spotify or for apple music can for their Ondemand Services are much, much greater and much more beneficial for the industry than the rates we get for pandora. Alex it is also my understanding, i dont have the exact figures here that a lot of , the labels had a stake in some of the interactive platforms like spotify. That makes sort of a governance here and who pays who even more complicated than it already is. How does that factor in it is kind of like a platform that has label investment, inc. Paid by a label or paying a label help us sort that out . Cary that issue is a little complicated because, first of all, there are lots of deals where the Digital Music service icenscor to take an equity stake because they want them to have a stake in the success of the service. It is a good thing for them to do. Most of those equity stakes never pay a nickel, because the service goes out of business and is unsuccessful. Every once in a while, there can be a success. But, the terms under which you might take equity, sometimes youre actually making a dollar investment in the company, sometimes it is just something that they want to throw in. They vary quite widely. But, it does make for much more interesting marketplace deals, because you have the opportunity to work out deals in very flexible ways unlike under the compulsory license where it is sort of a onesizefitsall approach and there is one rate xm pandora and for sirius and so on. You dont have the opportunity to sit down and make the service unction better be more appealing ato consumers, so that it is winwin for everyone. Alex lets give it if we could to the crb, which is the copyright royalty board. Which is that before said those compulsory royalty rates. Were coming up on the end of the year where the crb is expected to set the next rates xm andndora and sirius other online webcasters will pay for the next five years. Give me a little bit of show me your crystal ball a little bit, if you would, what we going to see out of the crb and what are the potential consequences of whether they i think you guys have suggested that the rate the . 25 per 100 streams whereas pandora and the like has aroundat it should be . 11 per 100 streams . Cary iheartradio suggested that it be about 5000 of a cent per stream. I mean, the reality is that we think that the royalty proposals that were made by the Digital Music services were unfairly low. As it is, you are hearing artists and labels complaining about the fact that they cannot build a Sustainable Business at the royalty rates that we are currently collecting from streaming services. Not all streaming services are the same, and that is the problem that we are facing. In terms of the crystal ball one thing i have learned is not to use one. You cannot predict what is going to happen. But, you know, we are hoping that the royalty rate that we get from pandora will go up. They are a huge service, they are now in the marketplace, they are a public company. Theyre beginning to try and monetize, which is not something that they were doing before. Because, before they were focused on their ipo. They just wanted more and more listeners. Now, they have to try and actually monetize the Music Service and we hope that they will be successful at it, and we hope that they can afford to pay higher royalties. Alex sure, and i wanted to follow up there because we were , talking at second ago about the Interactive Services your point was that the labels want to see these services succeed because this is how music is going to be disseminated in the future. Is there sort of a be careful what you wish for to the extent that if we raise the pandora rates, they are not going to be as fruitful in innovating or doing things that will ultimately be good for our members and their artists in the future how do you find that balance . Complicationshe of this issue is something we call convergence. When the compulsory license was created, that in 1995 and again in 1998 there was a pretty clear model. You had a Radio Service where it is like radio, or they just broadcast music to you, and then there were the Interactive Services that would be ondemand and you can pick what you want to hear. But then, they started to converge. Pandora offered not just a Radio Service, but rather, you can customize your Radio Station, whatever you want to hear, that is what you hear. Alex it almost sounds interactive to people. Cary it almost does, doesnt . The other thing is what they did was you pick, though, i like eric clapton, you pick your Radio Station and you get all of this music that was satisfying your music taste. And it became sort of a playlist. Then, the Ondemand Services like spotify realized, people do not just want to do ondemand, they want playlists, too. So they start offering playlists, too. What you have now is a convergence where pandora has moved from a pure radio model to a very, very highly Customized Service to the point where people now think that it is an ondemand service. They do not recognize that for pandora and spotify, there are two different models, but for spotify, you have to pay more than you do for pandora. As a result, there is a lot of confusion in the marketplace and the fact that there has been such convergence it makes us very wary of having pandora not be able to innovate because the fact is that there innovating into the interactive market, and decreasing the benefit of the market for spotify, apple, rhapsody and the like. Peter is it fair to say the Music Industry was slow and recognizing the technological changes that were making music delivery different . Criticism that is often leveled at us. If you actually look into what was required to make this happen, you would be a little more sympathetic to the plight of the companies. This happened all very, very quickly. We were the canary in the coal mine, and we had a very small files that could be traded online. Way before movies and books and everything else. So, it did catch us by surprise. We also thought that people would want only highquality music. People spend months in the studio perfecting every sound who would want to hear and mp3 file in a tiny earphone . Turned out, people did. And then, actually, the companies experimented with full album deliveries. Project for am full album download. They organized their own joint ventures to create Distribution Systems and so on. The fact is Record Companies should stick to making music, not technology. And apple came in and showed how it could be done and it was done well. And, apple created the path for a Download Service that actually worked and that worked for everybody. That had the benefit of being the old model. It was just, instead of selling a physical cd, you are selling a file, but it was this same royalty rates, the contracts applied relatively easily. It is the transition to streaming that has been really complicated because it is a combination of different right. It is something that was not really covered before. It has been much more difficult to transition to streaming than it was to downloads, yet that is happening now. The industry has learned, you cannot change what Consumers Want. If Consumers Want streams, that is what they are going to get. And they have voted that they want streams. Streaming has increased 23 just this year over last year. Just five years ago, it was in the single digits. It is now about 32 of our revenues and continuing to climb. So, we have got to transition to streaming, we need to get into the streaming services where the revenues are significant. We do very well from spotify. But we do very poorly from youtube and from pandora. Because, they payroll to rates they pay royalty rates that are a fraction of what we are getting from spotify and apple music and so on and so forth. The more that we can shift users into Subscription Services the , more remunerative streaming will be and songwriters, artists, labels, publishers will be able to make a living with streaming. But, if we are stuck in a world of the statutory license under pandora and youtube has a slightly different situation, let me give you an example this is an amazing fact youtube serves up billions and billions of streams of music every year. Those billions of streams, they are paying us less than we are then we earn from the sale of vinyl records. They are the largest ondemand streaming service in the world. And certainly in the u. S. They are serving 100 Million People we earn less from youtube and the other ondemand, ad supported services than we do from the sale of vinyl records. Something is wrong here. That is our problem. Alex i want to bounce back to the congressional angle. You said that it is a tall order, the copyright reform efforts, but it is not worth trying. I think a lot of people would agree with that. Cary it is worth trying. Alex sorry, excuse me. It is worth trying. What if it does not pan out . Or what if the copyright act of 1976 it takes 20 years to get to fruition . What you do then . Are there some types of private agreements that can be struck to move the ball in the interim . I know we have seen some of those in the antipiracy work. If we cannot get that over the finish line, what does the riaa and its membership do . Cary they do what we have been doing which is cobbled together private sector solutions. Alex can you give us some examples of what that looks like . Cary well, there were issues about whether remember, im i mentioned mechanical royalties the question was do you have to pay for a mechanical license when you are streaming . Which is usually considered a public performance, or do you only need a license from ascap and bmi . We worked out a solution where we agreed on a combined royalty rate for both the performance and for the mechanical, in one allinclusive rate. We worked that out because it was a practical solution to a legal and practical problem. And, we proposed it to the copyright royalty board and we proposed it to the Copyright Office they have embodied and regulations and it is now working. So, that is an example of finding a practical solution within the confines of the law, but in a way that the 1909 legislation did not contemplate. We will continue to look for those kinds of solutions. Alex lets talk about transparency for a second. A lot of the platforms say that when you hear and artist complaining that they have low compensation, it is an large part because the labels, or in a lot of cases, the publishers, are skimming off the top. It is sometimes hard to violate and evaluate those claims because we cannot really see what they look like. I know that the compulsory part, we know what sound exchange payments look like, but outside of that context, would you agree that more transparency is a good thing to sort of educate and get everyone on the same page, and if so, when we doing to get their . Cary we definitely need more transparency. This is a very complicated business and you have very different deals, as we just talked about. Most artists dont realize that they are being paid this much from youtube and this much from spotify, you hear artists with taking their music off of spotify and insisting that it be on youtube. People do not understand where their money is coming from. More educated artists and more educated managers are understanding how all of these licenses work are important for everybody. Artists deserve to know how they are being paid and how their work has been used and compensated and we need to make it easier for them to get that information. Right now, we used to be able to just give them here were your cd sales and here are your royalties. Now, you have hundreds, thousands of pages of minute royalties from all the Different Services and all the different markets and the deals vary from year to year and from label to label. It is complicated. We need to find a way for artists to be able to get that information in a usable format. Still, having but not in so much detail that they miss the big picture. So, it is just another bump in the road on this digital transition, and it is not surprising that these issues would arise and we will work through them and find ways to solve them. Peter can an artist like taylor control does she have over her music and where it is played . Cary complicated answer. She does have control over her music, if it is on a an Interactive Service and only in connection with the recording, not with the musical work. She writes her own songs. She is under a government Consent Decree to license her music via ascap or bmi under this Consent Decree, so she could not remove her music from spotify based on the musical work. But she could, based on the fact that she and her record label own the rights in the master recording. So, even that is a complicated example of how an artist has some ability to control her destiny, but not a complete ability because of this hybrid licensing system we are under. Peter we have about a minute left, we all know that congress is busy it is an Election Year , next year, theres one of a little bit of turmoil going on up there right now what would you like to see them do first, and do you expect that to happen this year . Cary actually, what i would really like to see them do is fix the dmca. This Digital Millennium Copyright Act which was passed in 1998 which means that it was written for aol, not google. It is still the antipiracy system under which we have to operate. We have to give notice of an illegal copy, and they will take it down. Well, that system does not work. It has not worked for years, and it is a joke. Yet, it is the basis on which some Pirate Services and some legitimate services are able to get no royalties or discounted royalties. Grooveshark, which was finally closed down by the courts relied on the dmca to basically say we dont know who is putting a a legal music on their service. We have no responsibility for that. People are using the dmca to get away with basically distributed in our music without paying us or paying us belowmarket rates. We cannot control piracy, and we cant get the value that music deserves so long as the dmca remains that test. And therefore, we would really love to see congress focus on that. Peter 50 billion, i think was the number of illegal downloads from 20052009. Has that changed since the licensing Interactive Services have come into being . Cary one of the great benefits of streaming services is that they have reduced the incentives for piracy because if you can , get all of the music that you want whenever you want it why would you bother going to an illegal site to download it . Especially since the illegal sites have malware and adware and all sorts of things that you do not want on your machine. That has helped. But, piracy continues to evolve, and there are all sorts of other problems. This is not kids in a basement. These are international, sophisticated rings that are engaged in this kind of crime. Money, a make a lot of lot of money for this. Evolve iny we have to our antipiracy strategies at the same time as the piracy problem changes. Peter we have been talking with cary sherman with the Recording Industry of america and, alex beyers of politico. Gentlemen thank you. , tonight collects all persons having business before the Supreme Court of the united states. Landmark cases. Stories ande human constitutional dramas behind 12 Supreme Court decisions. We will hear arguments and number 18. Some of the most important decisions were ones that were quite unpopular. A few cases illustrate very dramatically