The answer relates to copyright law, of course, but probably not in the way you’d expect. Copyright law protects interests in both songs and recordings of them, but not in the same way. Song recordings are protected via a property rule: you may not use a recording without the owner’s permission. On the other hand, song melodies and lyrics are protected via a liability rule: you can use the work without permission, provided you pay a fixed price set by law.
The following is what I’ve pieced together based on a conversation with a lawyer friend and my own reading of the relevant copyright law. (I’m not a lawyer, though, so I welcome any corrections to my analysis here.) Section 106 of the copyright code grants the copyright’s holder “the exclusive rights to do and to authorize” [emphasis added] any recording of the work in question. But Section 114 limits the scope of such rights:
The exclusive right of the owner of copyright in a sound recording under clause (1) of section 106 is limited to the right to duplicate the sound recording in the form of phonorecords or copies that directly or indirectly recapture the actual sounds fixed in the recording. The exclusive right of the owner of copyright in a sound recording under clause (2) of section 106 is limited to the right to prepare a derivative work in which the actual sounds fixed in the sound recording are rearranged, remixed, or otherwise altered in sequence or quality. [emphasis added]The next sentence sounds almost as though the authors of the copyright code had karaoke in mind:
The exclusive rights of the owner of copyright in a sound recording under clauses (1) and (2) of section 106 do not extend to the making or duplication of another sound recording that consists entirely of an independent fixation of other sounds, even though such sounds imitate or simulate those in the copyrighted sound recording. [emphasis added]But to take advantage of this independent-recording loophole, you must obtain a “compulsory license” to make copies, for which you must pay a royalty as detailed in Section 115: “With respect to each work embodied in the phonorecord, the royalty shall be either two and three-fourths cents, or one-half of one cent per minute of playing time or fraction thereof, whichever amount is larger.”
So here’s your choice as a karaoke producer: You can use your own musicians and sound technicians to recreate the work, and then pay a few cents per song (multiplied by the number of copies made). Or you can use the original track and strip out the vocals; but in order to do so, you must obtain permission from the copyright owner, with all the transaction costs and probably higher price that would entail.
Is this system efficient? On the one hand, it’s clearly a waste of resources to hire musicians and sound technicians to reproduce works that already exist. In addition, the perceived quality will generally be lower than the original, since karaoke singers generally want something as close to the original as possible. On the other hand, extending the property rule to cover indirect duplication would create a hold-out problem: copyright owners could demand high prices for the right to create karaoke tracks. Real resources would be wasted on the negotiation process; worse, if negotiations ever broke down, some great songs might never get converted to karaoke form.
Extending the property rule could be justified on similar grounds to those that justify having copyright law at all: the property rule gives the copyright holder greater incentive to produce creative works in the first place. The added value of more created works outweighs, we hope, the loss from under-use of a nonrivalrous good. But how much added value are we really talking about here? As fun as karaoke is, it seems unlikely to me that demand for karaoke tracks would make the marginal difference between creation and non-creation for most songs. If I’m right, then anything impeding the duplication of songs for karaoke purposes would create an almost pure deadweight loss from under-use. The deadweight loss would take the form of drunken revelers unable to sing their favorite songs because permission has never been granted by the artists. The liability rule creates a reasonable second-best solution.
But could there not be a better solution that avoids the wasteful use of studio musicians? Perhaps copyright law needs a karaoke exception, which would allow the use of original recordings with stripped-out vocals for the same royalty that applies to new recordings.