or individual albums the variety of ways is astounding. >> host: but that transition from ted years ago to what we go to day, what has that done to the music industry? >> guest: it has caused a lot of difficulty. the fact of the matter is the transition has operated relatively smoothly if you consider we are 75% digital. with an extraordinary transition. but there are bumps in the road as to figure out what is necessary to license the download service or the streaming service or how do the contracts applied. how to you insure the

royalty rates are sufficient? every time we think we have finally gotten to a point of growth the there is the new transition coming along the way which is challenging. >> but the opportunities are so great because we find new audiences to connect and that is great for music. >> host: we want to bring our guest from political into the conversation. >> guest: it third-party services are used to upload to spotify do we still need record labels at this point or will we in 10 years? >> with the internet for started to become the new development thinking that

era of labels may be over why would you do that if artists could go straight to their favorites but i think now they are more important than ever because everybody who wants to be an artist they can be of line to put the work out there and as a result they are more clever than ever for those to put the financial resources behind a particular artist to say they're worth hearing. i think they are more important period ever template a significant role christ. >> the fact you still have the opportunity for them to do with themselves is great so the artist can choose. many like to get into the relationships but others

just wanted to focus so perfected the aircraft to to have the services of a label makes a difference. >> talk about lobbying on capitol hill we have seen the marketplace as a big topic of discussion with the judiciary committee with 20 hearings on the subject. at the same time we know it is tough for congress to do pretty much anything. do you really think we will see legislation to change those things? it seems like a tall order right now. >> i think it is. the chairman has said the broader approach this in a systematic way to gather information and has made

clear the industry itself has to try to develop how music licensing can be reformed with the digital music services. that is a tall order and will be hard to do. >> host: cary sherman who are the players in this debate? who pays for that? >> guest: we represent record labels in the year the business partners of the artist. we create sound recordings and basically when you make a copy of the words then you are the songwriters and publishers who write the music. they have their own separate copyright in separate licensing mechanism is an

organization so it becomes quite complicated because you have to license to creative works for one in use by aa streaming service. then the licensing entities themselves that's where we represent the song writers and the publishers to have their own view. than the digital music services that are issued a different position because they operate under a different regime. pandora is a non interactive radio service that has the benefit of a government compulsory license we are required to be called music available to pandora as long as we paid a royalty rate set by the government even

satellite radio has to benefit from the license except they cannot operate under a different rate standard the and pandora. they you have spotify or apple music or rhapsody that operates in the marketplace it is on demand and it is interactive you can pick what sold you want to hear right now it will play that put they have to negotiate with record companies so it is an entirely different licensee back as some. of the publishing side it is even more complicated, but it shows we have a hybrid licensee system where if you are in your car listening to music over the radio a the artist does not get a cent.

if you connect your cellphone and it is on pandora they will get one rate if it comes over spotify is a higher rate. is crazy it is broken is underway to do complicated in the world to license 20 million tracks at a time instead of one song or one elbow and that is why it is so difficult. >> host: if you got to decide how this change, how would it change? >> we would need a lot is the problem and there are a lot of players. first of all, we would want to be paid by the radio. bolster shocked to learn

am/fm radio pays nothing to the artist or the record labels with the broadcast their music they pay some writers and publishers but not the artist or the label. this is a $60 billion industry and dirty $60 billion of advertising revenue every year from the use of music but they paid nothing for it. no other copyrighted work is discriminated against that way in virtually no other developed countries in the world that discriminate that way but yet special exemptions id u.s. law big city unique situation. with fellow market rate standard that satellite radio has and they were grandfathered as a start up that still exist even though they make money hand over fist they should share their

revenue more fairly with those on which the service is based in that needs to be fixed as well. we need to reach your they are paid fought -- far -- fair market value and it is not the current situation right now. also the mechanical licensee system it is the royalty paid for the of production in distribution of the copy of a recording. with a company licenses a song it gets a mechanical license. but that law was written in 1909. so you have to have a certified letter by the old one song at a time to say i will take a vintage of the slices.

when you are licensing 30 million at a time you will not send out certified letters one at a time and now there are multiple publishers for every one song we need a blanket license for you file one piece of paper that you handle the distribution. those are some of the things we need to do. >> i heard you talked about regulatory parity with the of broadcasters through pandora and satellite the usually stops before be get to the interactive services. will lead you want to see equilibrium between interactive or non interactive have to do? or could they say outside? >> we don't believe in compulsory license. but as a matter of practical reality no law will change.

there are efficiencies. >> so we're not asking to change that? >> it is thought we have a compulsory license. >> we understand that we don't want that lyses extended beyond that which fully exist as the marketplace deals for the industry those rates from spotify or apple musec are much greater and much more beneficial for the industry than rates from pandora. >> i a understand the labels have a stake in the interactive platforms like spotify that makes the governance even more complicated. how does that factor into

the platform and then they will help us sort that out? >> it is a little complicated because there are deals where the digital music service once the of licensor to taken an equity stake. it is a good thing for them to do. but they never pay a nickel because the service goes out of business. every bonds ago while there is a success sometimes it is something to throw in. it varies quite to widely but it does make for a much more interesting field as

you have the opportunity to look in a flexible way of mike where one rate to four pandora and also an to the more appealing. >> so we will look at the board that sets those rates as we come up on the end of the year where they are expected to set the next rates that the web casters will pay for the next five years. show me your crystal ball what will we see and what are the potential consequences? eight you have suggested the

rate the $0.25 but pandora has suggested the $0.11. >> i heard radio suggest but the reality is we think the of royalty proposal provided by the digital music services were unfairly low talking about our decision labels in the rates that were collected. not all streaming services are the same and that is the problem we're facing. in terms of the crystal ball i don't use one. you cannot predict what will happen but we are hoping their rates from pandora

will go up as they are in and of marketplace and are beginning to try to monetize because before faber focused on the ipo they just wanted more listeners that now have to try to modify the service id hope they are successful in hope they can afford to pay a higher rate. >> talk about those interactive services your point was the label's want to see them succeed because this is how well will be disseminated in the future. be careful what you wish for if we jacked up the rates they will not be as fruitful to do things that are good for members in the future. how do you find that balance? >> one of the complications of this issue, with the

compulsory license back in 1995 in the a.d. eight it was clear you have a radio service where they would broadcast music and the interactive services that would pick what you wanted to hear. but pandora it'd just offer a radio service that customize your station it does almost sound interactive and basically you say i like eric clapton or pick your radio station in all the music to your taste and it became a play list and other stations one

to a playlist so they offer that. so now you have a convergence where pandora has moved from a model to a highly customized service that they think it is on but there to different models but with spotify you have to pay more and as a result there is a lot of confusion in the marketplace and it makes us very wary to have pandora not be able to innovate as they innovate into the interactive market. >> host: is it fair to say the music industry was slow to recognize the technological changes for music delivery?

>> if you look into what was required to make this happen you would be more sympathetic to their plight as it all happened very, very quickly. the canary in the coal mine that files were traded bomb blinded way before everything else. it did catch us by surprise. we also thought people would only want high-quality music they spend months in the studio perfecting every sound would want to hear the empty file? but people did. then the companies experimented with album delivery, a project with i am for full album downloads downloads, they organized their own joint factures to

create distribution systems the record company should stick to making music but apple showed how it could be done and was done well. apple created the path for the download service that worked and worked for everybody that had the benefit instead of selling the physical cd were selling a final the contracts applied relatively easily but the transition to screen has been complicated because the combination of different rates something that was not covered before alien to it is much more difficult to trade bin to download and that is happening now. the industry has learned you cannot change what consumers want if they want streams

that is what they will get in they have voted they want streams. 23% just this year over last year from five years ago it was in the single digits now is 32% of revenue and continues to climb. we have to transition but we need to get into the services where the revenue is significant we do very well through spotify but very poorly from pandora they pay royalty rates of fraction of what we get from spotify and apple musec. the more we can shift into a subscription services the more the song writers or the labels could make of living with streaming but if we

your stock with a statutory license under pandora, i will give you an example, youtube has billions of streams every year and they have paid less than what the current from the sale of the records the largest on demand streaming service in the world serving 100 million in the united states we earn less from youtube and the others then from the sale of vinyl records. something is wrong. >> i want to bounce back to the congressional in goal you set it is tall order and

it is not worth trying. >> it is worth trying. >> yes. excuse me. what if that does not pan out? what if it takes 20 years to get to fruition? what do you do? are there private agreements to move the ball in the interim? but if we can't get that over the finish line what does that do? >> then we cobble together private sector solutions. there were issues of royalties of reproductions of distribution rights and to do you have to pay for a

mechanical license when you are streaming? that is considered a public performance? we worked out a solution and where we agreed to a royalty rate for the performance with say one all-inclusive rate. because that was a practical solution to a legal and practical problem we propose that to the royalty board they have a body that with regulations and now it works but that is an example to find a practical solution within the confines of the lot in the way that the legislation did not contemplate. >> let's talk about transport to lots of platform say if you hear an

artist completing of low compensation is because the labels or the publishers skim off the topic is hard to evaluate the claims because we cannot see what the deal looks like. in the compulsory part we go with the payments looks like but outside of that context could you agree more transparency is a good thing? and what are we doing to get there? >> it is a very complicated business. most artists don't realize their pay this much from youtube did this much from spotify. people don't understand where the money is coming from. more educated are distributed jurors understood how these licenses work it is

important for everybody in the artist deserves to know how they are paid and how their work is used and compensated to make it easier. right now you used to be able to get sales as royalties but now you have thousands of pages of royalties from all the different services and in the markets from year-to-year or label to label and it is complicated artist need to get that information in a usable format having all the information in that day point -- they want. is another bump in the road it is not surprising and we will work through them.

>> host: candid artist like taylor's with to dishy have control over from music and where it is played? >> complicated answer. she does have control over her music if it is on the interactive service and only in connection with the recording not the musical work. she writes her own songs so was under the of consent decree to license per musec -- herve musec said she could not remove her music from spotify based on the musical work but she could not based on the fact that she and her record label right of master recordings so even that is complicated of how would artist can

control that 90 complete control because of the hybrid system. >> host: we know congress is busy with the election year isn't turmoil right now. [laughter] what would you like them to do first? >> really is the fix the lead digital millennium copyright act passed 1998 which means it was written for aol and not to google with the anti-piracy system which we have to operate in in to give notice of the legal copy then they take it down. that does not work and has not for years and is a joke but yet it is the basis on which some services are able

to get no royalties or discounted royalties. they relied on the dmca we don't know who was putting the legal music on our service that people use that are getting away with basically distributing our music without paying a sore the below market rate we cannot get the value that music deserves as long as budget dmca is attached we would really love to see congress focus on back. >> host: $50 billion of illegal downloads? according to your web site. has that changed since the of lysine -- licensing interactive services? >> that is the big thing is that they have reduced the

incentive for piracy because if you can get the music you want then why would you go to the illegal site to download especially they have spam wear and now we're in what you don't want. but piracy continues to evolve and there are other problems. this is international sophisticated ways that are engaged. . .

to make the payment structure more convenient. >> the narrative of artist and songwriters feeling like they don't understand where their money is coming from is not new. but i think we are living in a world today where everything is trackable. so the nsa can know where i am, where you are, what you are talking about on your cellphone. there is no reason artist and creators shouldn't be able to know where their songs are being streamed and how they are being paid for that. >> watch the "the communicators" tonight at 8 eastern on