>> guest: now you can stream it, you can stream like an internet like pandora, you can stream on demand whatever song you want to hear on spotify or audio or apple music and on and on. you can do it on mobile, you can

do it on pcs, you can download individual tracks, individual albums. the variety of ways that people can acquire music today is astounding and inconceivable 20 years ago. >> host: that transition from what we knew but ten years ago to what we know today, what has that done to the

>> guest: we find that there's a new transition coming along the way, which is what's making it so challenging. but also it makes it interesting and the opportunities are so great because you're finding new audiences and new ways of delivering the music, around it'ses are finding new ways to connect with fans. >> host: we want to bring alex byers of politico into this conversation as well. >> sure. carrie, it's 2015 -- cary, it's 2015, it's never been easier to use spotify or a platform like that. do we still need record labels at this point? will we in ten years as technology continues to develop? >> guest: you know, 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 has the opportunity to be online and put their work out there and try to find an audience. as a result, there's more clutter than ever. >> sure. >> guest: you need somebody who's going to be a pacemaker, who's going to put their financial and human resources behind a particular artist saying this person is worth hearing. so i think labels are actually more important than ever, and they've been playing a significant role in the development of an artist's career. >> sure. >> guest: the fact that you still have have an opportunity for artists to do it themselves is great for their career. 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 want to just

focus on perfectfecting their craft and making music, and for them having the services of a label makes all the difference. >> sure. >> f you talked about the roles on capitol hill, certainly, the music marketing place has been a topic of big discussion especially at the house judiciary committee. at the same time, we know that it's really tough for congress to do pretty much anything not to mention something as complicated as music licensing. do you really think we're going to see some legislation to change some of the things that you'd like to change? that seems like a tall order just looking at the the political atmosphere right now. >> guest: 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 consensus about how

music licensing can be reformed. and, let's face it, the digital music services need to be part of any consensus as well. that is a very tall order, and it's going to be very hard to do. but that doesn't mean -- >> sure. >> host: well, cary scherr -- sherman, who are the players over how we get our music and who pays for it? >> guest: okay. well, we represent labels, and we are the business partners of the artists. we create what are technically called sound recordings, and it's basically when you make a copy of the words and music to a song. then there are the song writers and publishers. they write the words and music. so they have their own separate copyright and entirely separate be licensing mechanisms and licensing organizations. so it becomes quite complicated

because you're having to license two creative works for one use by a streaming service or a download service, so on and so forth. then you have the licensing entities themselves, ascap and bmi, for example, represent the song writers and publishers, but they have their own views about what the best form of licensing is. then you have the digital music services, and the digital music services are in very different positions because they often operate under different regulatory regimes. pandora, for example, is an, a non- interactive radio service which means 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's set by the government. then you have satellite radio. they also get the benefit of

government compulsory license except they operate under a different rate standard than pandora does. then you have spotify or apple music or audio and others, rhapsody. they operate this in the marketplace where their services are on demand. they're 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's an entirely different licensing mechanism. and then when you get over onto the publishing side, it gets even more complicated. i won't bother getting into all that now. it just goes to show we have a hybrid licensing system where if you are in your car listening to music, if you listen to it over am/fm radio, the artist would not get a cent. if you connect your cell phone to your car stereo and it's on

pandora, they'll get one rate. if you connect it and it comes over spotify, they will get a higher rate. if it -- i mean, it's crazy. it's a broken system. be and it's 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. and that's why it's the so difficult for this transition to take place. >> host: so if you got to decide how this changed, how would it change? what change would you like to see? >> guest: well, we would need a lot of changes, is the problem, and there are a lot of players involved. first off, we would want to be paid by am/fm radio. i think it's remarkable, most people are shocked to learn that in today's day and age am/fm radio pays nothing to artists

and record labels when they broadcast their music. they do pay the song writers and publishers, but they do not pay artists and labels. so this is a $16 billion industry where they're earning $16 billion in advertising revenues every year from be, basically, the use of music, and they pay nothing for it. there's no other copyrighted 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 exemptions in u.s. law, unique u.s. situation. we'd want to fix that. we'd want to fix the below market rate standard that siriusxm enjoys. for some reason they were grandfathered at a time when they were a start-up. that grandfather still exists even though they're making money hand over fist. they ought to be sharing their revenues more fairly with the people who create the music on

which their service is 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're on, and that is not the current situation right now. we also need to revise the, it's called mechanic alliancing system. it's an odd term, but it's the royalty that's 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 mechanic alliance. well -- 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 asking, you know, saying i'm going to take advantage of this license. when you're licensing 30 million

tracks at a time, you're not sending out certifies letters one song at a time. and be by the way, there are multiple songwriters and multiple music publishers for every one song. we need a blanket licensing system where you file one piece of paper, and you've got a license, and then you handle the distribution of money be afterwards. those are just some of the things we need to do, and all of them are challenging. >> i've heard you talk a hot about regulatory parity at zero, siriusxm and, obviously, pandora, and what i've heard recently before we get to the interactive services, would you want to see some type of equilibrium between what the noninteractive and the interactive guys have to do, or should they stay outside the compulsory system? >> guest: well, we don't believe in compulsory licenses as a matter of principle. a 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're not asking to change that. >> got it. >> guest: it is a little odd that we have a compulsory license for music. these are not nuclear warheads. >> correct. >> guest: but we understand that that's going to continue. but certainly, we don't want the compulsory license extended beyond that which already exists. the marketplace deals work a lot better for the industry. the rates that we get from spotify or for apple music for their on demand services are much, much greater and much more beneficial for the industry than the rates we get for pandora. >> right. it's also my understanding, i don't have the exact figures here, but that a lot of the labels have a stake in some of the interactive platforms like spotify. that makes some of the governance here and who's paying whom even more complicated than it already is. how does that factor in u it's kind of like a platform that has

a label investment being paid by a label, help us sort that out a little bit. >> guest: well, that issue's a little complicated because, first of all, there are lots of deals where the digital music service wants the licensor to take an equity stake because they want them to have a stake in the success of the service. >> sure, right. >> guest: so 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 you're actually making a dollar investment in the company, sometimes it's just something 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's sort of a one-size-fits-all approach, be there's one rate for pandora and for siriusxm and so on. everybody pays the same thing, and you don't have the opportunity to sit down and figure out how to make the service function better, be more appealing to consumers so that it's a win/win for everybody. >> sure. let's pivot, if we could, to the crb, that's the copyright royalty board which you mentioned before which sets those compulsory licensing rates. we're coming up on the end of the year where the crb is expected to set the next rates that pandora and sirius siriusxl pay for the next five years. give me a little bit of finish show me your crystal ball a little bit, if you would. what are we going to see out of the crb, and what are the potential consequences of whether they sort of -- i think you guys have suggested that the rate be around 25 p cents per

100 streams whereas pandora and the like have suggested it be around 11 cents per hundred streams. >> guest: well, and i heart radio suggested about five thousandths of a -- the reality is we think the proposals that were made by the digital music services were unfairly low. as it is, you're hearing artists and labels complaining about the fact that they can't build a sustainable business at the royalty rates that we're currently collecting from streaming services. not all streaming services are the same, and that's the problem that we're facing. >> right. >> guest: in terms of the crystal ball, one thing i've learned is not to use one. >> sure. >> guest: you cannot predict what's going to happen. but, you know, we're hoping that the royalty rates that we get from pandora will go up. they are a huge service. they are now in the marketplace, they are a public company.

they're beginning to try and monetize, which is not something they were doing before. because before they were focused on their ip work, you know? they -- ipo, you know, they just wanted more and more listeners. now they have to tile try to monetize the music service, and we hope they will be successful at it. >> sure. and i wanted to follow up there because when we were talking about the interactive services, your point was the labels want to see these services succeed -- >> guest: absolutely. >> -- 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, well, if we jack up pandora's rates, they aren't 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? >> guest: well, one of the complications of this issue is something we call convergence. when the compulsory license was

created back in 1995 and then again in 1998, it was a pretty clear model. you had a radio service where it's like radio where they just broadcast music to you, and be be -- and then there was the interactive services that could be on demand and you could pick what you wanted to hear. but then they started to converge. pandora offered not just a radio service, but rather, you customize your radio station. whatever you want to hear -- >> it almost sounds interactive to people. >> guest: it almost does, doesn't it? >> sure. >> guest: and the other thing was what they basically did wuss, oh, i like eric clapton, you would get all this music that was satisfying your music tastes. and it became sort of a playlist. and then the on demand services like spotify realized, well, people don't want to just do on demand, they want playlists too,

so they started offering playlists too. what youd had was a convergence where pandora has moved from a pureed owe model to a very, very highly customized service. they don't recognize that for pandora and spotify there are two different models, but for spotify you've got to pay more than you do for pandora. as a result, there's a lot of confusion in the marketplace, and the fact that there's been such convergence, it makes us very wary of having pandora not be able to innovate because the fact is that they're innovating into the interactive market and decreasing the benefit of the market for a spotify, apple, rhapsody and the like. >> host: well, cary sherman, is it fair to say the music industry was slow to recognize the technological changes that were making music delivery different? >> guest: well, that's criticism that is actually leveled at us.

-- that is often leveled at us. if you actually look into what was required to make this happen, you'd be more sympathetic to the plight of companies. this happened all very, very quickly. you know, we were the canary in the coal mine. we had very, 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 high quality music. i mean, people spend months in the tuesday -- in the studio perfecting every sound. who would want to hear an mp3 file in a tin earphone? turns out people did. and then, actually, the companies experimented with full album deliveries, they did a project with ibm for full album downloads. they organized their own joint ventures to create distribution systems and so on, but 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 were selling a file, but it was the same royalty rates, the contracts applied relatively easily. it's the transition to streaming that has been really complicated because it's a combination of different rights, it's something that wasn't really covered before. it's 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's what they're going to get. and they have voted that they

want streams. streaming has increased 23% just this year over last year. just, you know, five years ago it was in the single digits. it is now about 32 president of our rev -- 32% of our revenues and continuing to incline. so we have got to transition to streaming. but we need to get into the streaming services where the revenues are significant. we do very well from spotify be, but we do very poorly from youtube and from pandora. because they pay royalty rates that are a fraction of what we're 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, labels, publishers will be able to make a living with streaming. but if we're 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, billions of streams of music every year. with those billions of streams, they are paying us less than we earn from the sale of vinyl records. they are the largest on-demand streaming service in the world, and certainly in the u.s. they're serving 100 million people. we earn less from youtube and the other on-demand, ad-supported services than we do from the sale of vinyl records. something's wrong here. that's our problem. >> i want to bounce back to the congressional angle. you said that it's a tall order, the copyrighting reform effort, but it's not worth trying.

i think a lot of people -- >> guest: it is worth trying. >> sorry. excuse me be, it is worth trying. what if it doesn't pan out? or what if, like, the copyright act of 1976, it takes 20 years to get to fruition? what to you do then? are there some types of private agreements that can be struck to move the ball in the interim? i know we've seen some of those in the anti-piracy context. but, again, if we can't get that over the finish line, what does the raa and its membership do? >> guest: ing we cobble together public sector solutions. >> can you give us some examples of what that looks like? >> guest: well, there were issues -- remember i mentioned mechanical royalties which are distribution rights? and the question was do you have to pay for a mechanical license when you're streaming, which is usually considered a public performance be, or do you only

need be a license from ascap and bmi? be well, we worked out a solution where we agreed on a combined royalty rate for both the performance for ascap and bmi and for the mechanical in one all-inclusive 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, we proposed it to the copyright office, they've embodied it in regulations, and it's now working. so that's an example of finding a practical solution within the confines of the law but in a way that the 1909 legislation didn't contemplate. we will continue to look for those kinds of solutions. >> sure. let's talk about transparency for a second. a lot of the platforms say that when you hear an artist complaining that they have low

compensation, it's in large part because the labels or in a lot of cases the publishers on the songwriter context are skimming off the top. it's sometimes hard to evaluate those claims because we can't really see what the deals look like. i know that in the compulsory perspective, in the compulsory part we know what sort of sound exchanges 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, what are we doing to get there? >> guest: we definitely need more transparency. we definitely -- this is a very complicated business, and you've got very different deals as we just talked about. most artists don't realize they're being paid this much from youtube and this much from spotify, yet you hear artists withdrawing from spotify and insisting it be on youtube. >> right. >> guest: people don't understand where their money is coming from. many educated artists, more more educated more managers are

important for everybody. artists deserve to know how they're being paid and how their work has been used and compensated, and we need to make it easier for them to get that information. flight, you know -- right now, you know, we used to be able to give them here are your cd sales is and here's your royalties. now you've got hundreds of thousands of pages of, you know, midnight royalties from -- minute royalties from all the different services and markets, and the deals vary from year to year and label to label. it's complicated. we need to find a way for artists to be able to get that information in a usable format. still having all the information that they want, but not in so much detail that they miss the big picture. so it's just another bump in the road on this digital transition. it's not surprising that these issues would arise, and we will work through them and find ways to solve them. >> host: can a artist like taylor swift, does she have

control over her music and where it's played? >> guest: complicated answer. she does have control over her music be it's on -- if it's on a interactive service and only in connection with the recording, not with the musical work. she writes her own songs, she is you should a government consent -- she is under a government consent decree to license her music via ascap or bmi on a, 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 be of how an artist has some ability to control her destiny but not a complete ability because of this hybrid

licensing system we're under. >> host: cary sherman, we have about a minute left. we all know congress is busy, it's an election year next year, a little bit of turmoil going on this right now. [laughter] what would you like to see them do first in and do you expect that to happen this year? >> guest: well, actually, what i'd really like to see them do is fix the dmca. this digital millenium copyright act which was passed in 998 -- which means it was written for aol, not google -- is still the anti-piracy system under which we have to operate, we have to give notice be of an illegal copy, and they will take it down. well, that system doesn't work. it hasn't worked for years. it's 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. groove shark which was finally closed down by the courts relied on the dmca to say we don't know who's putting illegal music on our service, we have no responsibility for that. people are using the dmca to get away with, basically, distributing our music without paying us or paying us below market rates. we can't control piracy, and we can't get the value that music deserves so long as the dmca remains the test. and, therefore, we would really love to see congress focus on that. >> host: $50 billion, i think, was the number of -- 50 billion, i think, was the number of illegal downloads according to your web site, 30 billion or 50 billion, something like that, songs. has that changed since the licensing interactive services have come into being? >> guest: well, the streaming services, one of the great benefits of streaming services is they've reduced the incentive for piracy. because if you can get all the music you want whenever you want

it, why would you bother going to an illegal site to download snit especially since the illegal sites have malware and spamware and all sorts of things you don't want on your machine. so that has helped. but piracy continues to evolve, and there are all sorts of other problems. this is not, you know, kids in a basement. these are international, sophisticated rings that are engaged in this kind of crime, and they make a lot of money, a lot of money for this. and that's why we have to evolve in our anti-piracy strategies at the same time as the piracy prop changes. >> host: and we've been talking with cary sherman of the recording association of america and alex byers of politico. gentlemen, thank you. >> thank you. >> credit card -- c-span,

created by america's cable companies 35 years ago and brought to you as a public service by your local cable or satellite provider. >> next, the number of working age adults receiving disability benefits is rising. senator tom cotton talks about the effects of disability insurance and ways to improve it. [applause] >> thank you, john, and let me add my welcome this afternoon to the heritage foundation. social security's disability insurance program was established in the 1950s. like much of our federal government's social safety net, the disability insurance program was founded with noble intentions to insure that americans who could not work because of mental or physical impairment would not suffer from poverty or destitution.