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These services sell music, which is an heavily protected good.
Typically a recording will have three levels ownership:
- Songwriting: Money due to the composer of the lyrics and music of the recording. These are paid to each country Writers Associations.
- Performer/Producer Rights: Paid in different ways depending on the Law. In Portugal’s these are known as Related Rights (“direitos conexos”) and are paid separately to a different association than the one for author’s rights, in Common Law countries these are received by the writers associations.
- Sound Recording Rights: There are typically owned by Record Labels or by the Artists who make temporary licensing agreements their current label. It is not rare for the same recording to have different labels with rights to it depending on the territory thus making country by country licensing more complex.
So in order to have a music streaming business licensing is needed with at least the 1st two layers if the service is free and for subscription model most of the revenue will go the Sound recording owners (55-60%).
Since in the Paid Subscription Services it is possible to download tracks for these cases DRM protected files are used and some companies even use it for the free streams.
DRM - Digital Rights Management - was the answer from the record companies to illegal copy and distribution of music (its use covers other media such as movies, etc).
Digital rights management is an umbrella that covers any scheme that limits access to copyrighted material using technological means.
It has three levels: establishing a copyright for a piece of content, managing the distribution of that copyrighted content and controlling what a consumer can do with that content once it has been distributed. To accomplish this level of control, a DRM program has to effectively define and describe three entities -- the user, the content and the usage rights -- and the relationship between them. The usage rights include how many copies can be made of the file to different devices and mostly these rights are not portable to a new device (for instance if user buys a new desktop PC or smartphone).
There is not Industry Standard for DRM and it is possible to put this by software into files encoded by all the described codecs except MP3.
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