Two decades ago, Congress decided that Internet platforms shouldn’t have to face legal liability for copyright infringement committed by their users, as long as they followed certain procedures. The idea, which became the 1998 Digital Millennium Copyright Act (DMCA) -- and the Electronic Commerce Directive 2000 in the European Union -- was to spur online innovation and encourage investment by Internet service providers. At the time, this made perfect sense: Why should a company that transmits or stores data for a user face any liability for the user's actions? At the time, it was hard to imagine that a service like YouTube, which operates under this “safe harbor,” could compete with one like Apple’s iTunes Store.
When it comes to streaming music, of course, that’s exactly what YouTube does: Google’s video service is the biggest online music service in the world, and it’s free. It also pays rightsholders less than other streaming services, and unlike Spotify it hasn’t been able to establish a track record of converting its free users into paid subscribers that generate more revenue for everyone. The reason is simple: While other services have to license songs before streaming them, YouTube can offer them anyway, since users upload them. YouTube has always responded to takedown requests by rightsholders -- as it’s obligated to under the DMCA -- and it filters user uploads with reasonable, but far from perfect, effectiveness.
More than two years ago, when Irving Azoff, the major labels and various lobbyists drew attention to this issue, I wrote about what rightsholders call the “value gap," the difference between the price paid for music by YouTube and by licensed services like Spotify. I wrote then that technology companies wielded so much influence over U.S. politics that the issue could only be addressed by reforming the European Union Copyright Directive. Since rightsholders usually negotiate with online companies on a global basis, what happens in Europe matters worldwide -- just ask Microsoft.